K+S expects potash prices to return to about US$400/ton, is willing to risk its credit rating to fund new potash mine; company would use hybrid bond for about US$1.4B, or one-third, of necessary investment, for proposed Legacy project in Canada, says CFO

Allison Oesterle

NEW YORK , October 8, 2013 (Bloomberg LP) – K+S AG, Europe’s biggest producer of potash, said it’s prepared to put credit ratings at risk on funding a new mine because the company predicts prices for the crop nutrient will return to about $400 a ton.

A hybrid bond to raise one-third of the investment, or about $1.4 billion, for the Canadian project called Legacy is one option being considered, Chief Financial Officer Burkhard Lohr told analysts at a meeting yesterday. Lohr’s comments, reported in a Bernstein Research note today, were confirmed by Michael Wudonig, a spokesman at the Kassel, Germany-based potash producer.

K+S has dropped 29 percent in Frankfurt trading since competitor OAO Uralkali said July 30 that the fertilizer’s price may tumble to less than $300 a ton from more than $400 as the Russian company ramps up production to full capacity. K+S is forecasting that potash prices will bottom out in the last three months of this year and rise again in 2014, Lohr told the analysts.

“Watch for a potential downgrade of debt status since Legacy will continue with more debt financing,” the Bernstein analysts, including Jeremy Redenius and Paul Gait, said in a report titled “How K+S sees the industry and how we differ.”

K+S gained as much as 1.6 percent to 19 euros and was trading up 0.4 percent at 3:23 p.m., reversing a drop of as much as 1.3 percent earlier today. The stock has lost 46 percent this year, cutting the company’s market value to 3.59 billion euros ($4.88 billion).

The German company’s debt is rated BBB+ at Standard & Poor’s, the third-lowest investment grade, and Baa2 at Moody’s Investors Service, the second-lowest. Both credit-reporting companies have a negative watch on K+S, meaning they may downgrade the debt.

K+S will announce a cost-cutting program by the time it publishes quarterly earnings on Nov. 14, the CFO said yesterday.

--Editors: Tom Lavell, Simon Thiel

To contact the reporter on this story: Sheenagh Matthews in Frankfurt at smatthews6@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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