China’s Sinochem Corp. has hired banks to advise it how to foil BHP Billiton’s $39 billion bid for Potash Corp., two sources with direct knowledge of the matter told Reuters.
The state-owned chemicals group had hired Deutsche Bank and Citigroup for the purpose, the sources said after BHP extended its offer for Potash, the world’s largest fertilizer group, by a month to November 18 to provide Canada’s competition regulator with more information.
“Sinochem has been given an extra window of a month within which to decide whether and how they are going to bid,” said London-based analyst Dominic O’Kane at Liberum Capital.
“Clearly a large component of that will be determining whether they will get regulatory approval in Canada. If they think they will get regulatory approval, they will bid. If they don’t, they won’t,” he added.
Anglo-Australian miner BHP has said it would not be caught up in an expensive bidding war.
Deutsche Bank and Citigroup declined to comment. Sinochem could not be reached for comment on Wednesday, a public holiday in China.
Though it was still unclear whether a serious rival bid from a Chinese consortium would emerge, news of the banking mandates could indicate China will try and stymie the deal with a rival offer or by buying a blocking stake in Potash.
Interest in Potash is being fueled by an expected surge in fertilizer demand from China, India and other emerging economies due to rising food consumption.
Late on Tuesday in Canada, BHP Chief Executive Marius Kloppers said he was unconcerned by the possibility of a rival bid emerging and that the miner would rather drop its bid than raise the offer to a level that exceeded good value for its shareholders.
“If somebody offers a price at which we cannot demonstrate value for our shareholders, we’re probably not going to show,” Kloppers said in an interview with Canada’s Business News Network.
BHP shares were up 1.7 percent in London, in line with a 1.6 percent rise in the FTSE 350 mining index .FTNMX1770.
Potash’s U.S.-listed shares closed at $147.5 on Tuesday, 13.5 percent above BHP’s $130 offer, suggesting investors anticipate a higher bid.
Given the political obstacles in Canada, any Chinese bid would have to be part of a larger consortium to have a chance of succeeding, analysts said.
One obstacle facing officials in Beijing is that China, as a top consumer of potash, would want to keep prices low for the vital crop nutrient, whereas most consortium members would want to maximize returns with higher prices.
China sovereign wealth fund CIC CIC.UL has been mentioned as a potential Sinochem partner, but even a $300 billion fund has limits on how much it can spend.
