The Hindu Business Line : Coromandel Fert shareholders pact with Tunisian co today

Investment rationale
Coromandel Fertilisers and Godavari Fertilisers and Chemicals Ltd, together need about 450,000 tonnes of phosphoric acid
The Tunisian project will give access to 180,000 tonnes of the acid
In addition, the group will get 250,000 tonnes of the acid from Foskor of South Africa.

Chennai , Aug. 20

Coromandel Fertilisers Ltd will formally sign the shareholders agreement with Groupe Chimique Tunisien of Tunisia at Hyderabad on Monday, Mr A. Vellayan, Chairman of Coromandel Fertilisers has told Business Line.

15 pc stake

Coromandel Fertilisers, part of the Chennai-based Murugappa group, will take a 15 per cent stake in a three-way joint venture company that will be formed in Tunisia. (The third partner is Gujarat State Fertiliser Corporation, which signed the shareholders agreement on Sunday.)

The joint venture will be put up at La Skhira in Tunisia, a phosphoric acid plant of a capacity of 360,000 tonnes a year. The production will be equally shared between the Murugappa group and GSFC.

The cost of the project is estimated at $165 million. For a 15 per cent of the equity of $66 million, the Murugappa group will invest $9.9 million, or about Rs 50 crore in the project.

Financial closure for the project is expected by March 2007. While the investment will be phased through the two-year gestation time of the project, the group will put in 25 per cent of the investment upfront, for which it intends to raise funds through the ECB route.

Investment benefits

For the group, the rationale behind the investment is the securing of supplies of phosphoric acid, a critical raw material in the production of phosphatic fertilisers. The two fertiliser companies of the group, Coromandel Fertilisers and Godavari Fertilisers and Chemicals Ltd, together need about 450,000 tonnes of the acid, roughly 10 per cent of the consumption of all the fertiliser units in the country.

Demand for the acid from the two companies is also rising by 20 per cent a year, Mr Vellayan said.

The Tunisian project will give access to 180,000 tonnes of the acid. The group is already buying another 200,000 tonnes of the acid from Groupe Chimique Tunisien. In addition, it is getting 250,000 tonnes of the acid from Foskor of South Africa.

Foskor agreement

The Murugappa group has a 2.5 per cent stake in Foskor which it acquired in February 2005 for a consideration of Rs 27 crore. (Incidentally, Foskor, in turn has a 5 per cent stake in Godavari Fertilisers.) But under a `business assistance agreement', the Murugappa group could raise its stake in Foskor in lieu of fees for helping the loss-making South African company turnaround, up to 16 per cent.

Mr Vellayan said that Foskor had indeed been turned around, after the business assistance agreement began in February 2005. Foskor, which made a loss of $64 million in 2004-05, turned in a profit of $6 million in 2005-06 — a swing of $70 million.

Asked if the Murugappa group would get phosphoric acid at a price lower than the market price from its Tunisian venture, Mr Vellayan replied in the negative. The intended benefit, he said, was the steady supply of the acid. However, the 15 per cent stake in the joint venture was also "an opportunity to capture some value in the value chain on the other side," he said.

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