OREANDA-NEWS. On August 24, 2009 The Federal Antimonomoply Service (FAS) began legal proceedings against Uralkali and Silvinit. The basis for this action is a complaint by TNK-BP, which alleges that the potash producers are abusing their market position in order to charge high prices to local consumers, reported the press-centre of OTKRITIE FC.

View: TNK-BP has to purchase potash under global prices of roughly US400/tn daf, while other local consumers, such as agricultural companies and producers of complex fertilizers, enjoy the benefit of a much lower price (US 130/tn). Nonetheless, we view the effect of these proceedings as neutral for companies' businesses, since the oil producer accounts for less than 1% of the total revenue of potash producers. Prices for other Russian customers have already been approved by the FAS and have no potential for being lowered.

Valuation and Action: Uralkali's EV/EBITDA is 5.8x, while Silvinit's is just 4.4x, both trading with at least a 30% discount to foreign peers. We reiterate a BUY rating for these stocks.