Sinochem may be likeliest rival to BHP Potash bid

Sinochem Group, China’s largest fertiliser trader, has emerged as the likeliest bidder to rival BHP Billiton’s $40 billion offer for Potash Corp of Saskatchewan Inc, sources said.

Chinese authorities chose Sinochem as the country’s potential bidder and are allowing the Beijing-based company to begin piecing together an offer that would likely involve taking a majority stake in Potash, the people said. Sinochem would prefer to involve Canadian pension funds or other Canadian investors to create more support for an offer, said the people, who asked to remain anonymous because the talks are private.

Potash, the world’s largest producer of its namesake crop nutrient, last month rejected Melbourne-based BHP’s $130-a-share bid as too low and said it’s seeking other offers. A bid by state-controlled Sinochem would indicate China’s desire to stop BHP, the world’s largest mining company, from controlling more commodity supplies to the country.

“The main issue is how to ensure this could be a good investment with reasonable returns as the potash cycle has bottomed out,” said He Wei, an analyst at BOCOM International Holding by phone from Beijing. “Potash is a strategic asset to China.”

The board, management and advisers of Saskatoon, Saskatchewan-based Potash determined Sinochem will probably be the only other bidder, said one of the people. Potash’s advisers have been in regular contact with Sinochem’s advisers, which include Citigroup and Deutsche Bank, the people said.

Government objections
Bill Johnson, a spokesman for Potash in Saskatoon, declined to comment. Li Qiang, spokesman for Sinochem, wasn’t immediately available. Calls to the Ministry of Commerce and the National Development and Reform Commission, the Chinese ministries involved in approving the deal, weren’t answered.

By including Canadian investors, Sinochem may have a better chance of approval by Canadian regulators than previous attempts by Chinese state-owned groups to buy foreign companies. Cnooc Ltd, China’s biggest offshore energy producer, abandoned its $18.5 billion bid for Unocal Corp in 2005 after opposition from US lawmakers.

A Sinochem bid would “be a test of how open Canada really is for investments,” said Saxon Nicholls, a fund manager at Herschel Asset Management in Melbourne who helps oversee $785 million.