Coromandel takes $5-million stake in Foskor

Coromandel Fertilisers has invested $ 5 million to pick up a 2.5 per cent equity stake in South Africa's Foskor in order to secure supplies of phosphoric acid, a key raw material in the manufacture of phosphatic fertiliser.

The deal, which was announced last week, gives the Murugappa Group's Coromandel Fertilisers the option of increasing its equity stake in Foskor to 16.5 per cent at the end of the third year.

Coromandel's agreement with Foskor also includes business assistance in the areas of plant performance, procurement and logistics. A Vellayan, chairman, Coromandel, said that if the company's help improved Foskor's profitability, the gains would be converted into equity in favour of Coromandel.

The investment is meant to help Coromandel secure supplies of phosphoric acid, an input that makes up about 65 per cent of the cost of producing a unit of phosphatic fertiliser.

Vellayan said the biggest problem that the fertiliser companies are facing today is inadequate availability of phosphoric acid. The investment in Foskor would give Coromandel a priority in sourcing the company's phosphoric acid, he added.

Foskor is one of the largest producers of phosphoric acid in the world, and exports a significant quantity to India. The company has a 750,000 tonnes a year plant at Richards Bay, South Africa.

In the current fiscal, Foskor would supply about 150,000 tonnes of phosphoric acid to Coromandel and Godavari Fertilisers and Chemicals, another fertiliser company in the Murugappa Group.

Vellayan said Foskor's supply of phosphoric acid in the next fiscal to Murugappa Group's fertiliser companies could go up to 250,000 tonnes. The combined output of phosphatic fertiliser of the two companies in the current year is expected to be 2.5 million tonnes.

The current development comes in the wake of an existing relationship between Coromandel and Foskor.

In October 2003, Foskor signed an agreement with Coromandel to acquire a 5 per cent stake in Godavari Fertilisers and Chemicals.

A Foskor press release at that time said that the logic underpinning the investment was an attempt to secure an annual supply contract of about 200,000 tonnes of phosphoric acid.