/ 30 September 2010

Sinochem working hard on rival Potash bid

China’s top chemicals company Sinochem is working hard to come up with a plan challenge to BHP Billiton’s $39-billion bid for Potash Corp, sources said, but efforts to secure a Russian partner have failed, according to a report.

Sources close to Sinochem said the Chinese firm had a team of about 20 people was working overtime to come up with options to stall the BHP bid, and was looking to make a decision soon.

Sinochem held talks with Russian fertiliser maker UralKali over a possible joint bid for Potash, but those negotiations had collapsed, the Financial Times reported on Thursday.

While some bankers speculate the state-owned chemicals group does not need to rush into making a move after BHP extended its bid deadline to November 18, the sources close to Sinochem said a decision could come soon.

“There is no doubt Sinochem is very actively pushing ahead the Potash matter, and the company is getting very strong support from all the related government departments … the reason being, the government is dearly concerned with the grain problem,” a person with knowledge of Sinochem’s thinking said.

China’s main worry is that a BHP takeover of Potash Corp could push up the price of potash, a nutrient essential for boosting grain production to meet booming food needs.

Sinochem spokesperson Li Qiang was not immediately available to comment.

BHP Billiton is sitting tight while it tries to win regulatory approvals in Canada.

Tax concerns
The Canadian province of Saskatchewan has raised fears its tax revenues will take a hit from BHP Billiton’s offer for Potash Corp, a deal China’s Sinochem hopes to thwart as it The premier of the western Canadian province of Saskatchewan Brad Wall warned the deal could cut into corporate tax revenues and mining royalties, adding Ottawa would consider how the offer could affect federal and provincial revenues.

His comments came as Canada’s federal government reviews whether BHP Billiton’s hostile takeover bid for the fertiliser giant would provide a net benefit to the country.

Saskatchewan, Potash’s home base, is specifically concerned that BHP could use the interest it is charged for borrowing money to complete the takeover to write off corporate income taxes owed to both Ottawa and Saskatchewan.

“We don’t have the final estimates yet, but there is a real risk in terms of a substantial, potential decrease in corporate income taxes,” Wall told reporters. “We will balance the desire that we have for a positive investment climate with also the need to think long term.”

The next milestone for BHP’s bid is Monday, October 4, when Canada is due to rule on the bid based on national interest considerations. The deadline is widely expected to be extended by 30 days to November 3, and could be extended.

Potash Corp shares last traded at $144,86, 11,4% above BHP’s offer of $130 a share, indicating investors are expecting a higher offer.

Careful look
Saskatchewan’s Wall said Saskatchewan would take a careful look at any rival bid for Potash involving a Chinese sovereign fund or state-owned company.

Wall has said in the past he is also concerned that a BHP takeover of Potash, the number one producer of the fertiliser, could reduce royalties if the Anglo-Australian mining giant markets the crop nutrient independently, instead of through the Canpotex marketing consortium.

Such a change could weaken potash prices, which would lower provincial royalties.

Saskatchewan Energy Minister Bill Boyd said the provincial government has met with Mosaic and Agrium, Potash Corp’s partners in Canpotex, and both have expressed concerns about changes to the marketing regime.

Saskatchewan, which produces a quarter of the world’s potash, depends on the royalties for hundreds of millions of dollars in income each year, but received nearly $1,35-billion in 2008-09 after potash prices jumped.

“BHP Billiton will look after their shareholders, and they should, and I respect that,” Wall said. “Potash Corp will look after their shareholders, and they should, and I respect that.

“We will look after our shareholders, the people of the province, whose resource it is in the first place, and I know all companies will respect that as well.” – Reuters