Chinese bid to block BHP Billiton tie-up

City A.M. Reporter
CHINESE officials have ordered state companies to meet investment bankers to explore ways to block BHP Billiton’s $39bn (£25.3bn) bid for Potash.

In response to the directive, sources say Sinochem is holding meetings with several banks, including Citigroup, HSBC and Morgan Stanley.

The order from Beijing underscores the seriousness with which China is taking the potential BHP-Potash tie up and its implications for the pricing and supply of the crop nutrient, despite obstacles to launching a successful counter-bid.

A Wall Street Journal report last week said Sinochem had hired HSBC to advise on options pertaining to Potash.

One option being discussed is the possibility of Sinochem linking with China’s $300bn sovereign wealth fund CIC, according to a second banking source familiar with the matter.

The most likely scenario is that China will consider buying a blocking stake, rather than attempt a complete takeover of Potash.

Assuming a consortium pays a 20 per cent premium to Potash’s market price, a 15 per cent stake would cost about $8.3bn.

Sinochem and the banks declined to comment. CIC could not immediately be reached.

BHP chief executive Marius Kloppers has poured cold water on the possibility of a rival bid but another source close to the situation in Europe said the latest developments are evidence of solid interest in Potash by third parties.

Chinese firms have also approached at least one big Canadian pension manager about a rival bid.

Potash shares in New York closed down five cents on Friday at $148.50, while BHP’s London shares ended the day up 1.8 per cent.