Indonesia's Pupuk Kaltim in talks to buy Australian Incitec Pivot's fertiliser business -sources

By Yantoultra Ngui and Scott Murdoch

SINGAPORE/SYDNEY, July 24 (Reuters) - Indonesian state-owned fertiliser company PT Pupuk Kalimantan Timur , or Pupuk Kaltim, is in talks to acquire the fertiliser business of Australian-listed Incitec Pivot Ltd , two sources familiar with the matter said.

Pupuk Kaltim, which is Southeast Asia's biggest urea fertiliser maker, has engaged Citi to advise on the potential acquisition, one of the sources said, declining to be named as the matter is private.

Incitec Pivot commands a market value of A$5.73 billion ($3.86 billion) as of Monday. The Southbank, Victoria-headquartered company produces and distributes fertilisers and explosives and employs more than 5,800 employees, according to its website. One analyst said the fertiliser business could be worth around $1.2 billion.

Deliberations are still ongoing and no final decision has been made on the matter, the sources added.

Incitec's spokesperson told Reuters in response to a query on Monday that the company is not commenting beyond a statement it issued on July 12 saying it has "received a number of approaches for the potential acquisition of its fertilisers business".

Pupuk Kaltim and Citi declined to comment.

The talks come as Pupuk Kaltim is on an expansion trail. The Kalimantan-based firm announced in March that it was planning to invest at least $1 billion to increase capacity and set up a soda ash plant.

It is also planning a domestic initial public offering which could raise about $500 million, sources told Reuters in January.

Pupuk Kaltim has 13 factories, including five ammonia plants with a capacity of 2.74 million metric tonnes a year and five urea factories producing 3.43 million metric tonnes per year, its website shows.

Incitec is facing investor opposition to plans to de-merge its explosives manufacturing business, Dyno Nobel, by way of a separate listing to speed up growth in the explosives and fertiliser businesses.

Last month, it announced the resignation of chief executive officer and managing director Jeanne Johns.

Shares of the company have dropped 21.5% year to date. Weak performance of the fertilisers business amid a drop in commodity prices and adverse weather weighed on the company's first half-year profit. ($1 = 1.4846 Australian dollars) (Reporting by Yantoultra Ngui in Singapore and Scott Murdoch in Sydney; additional reporting by Fransiska Nangoy in Jakarta; editing by Kane Wu, Kirsten Donovan)