WRAPUP 4-China tells state companies to explore Potash bid

* Officials directed state firms to talk to banks – source

* Sinochem-CIC tie-up one option under discussion – source

* Blocking stake, rather than buyout, most likely strategy
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By Euan Rocha and Joseph Chaney

TORONTO/HONG KONG, Sept 3 (BestGrowthStock) – Chinese officials
have ordered state companies to meet investment bankers to
explore ways to block BHP Billiton’s (BHP.AX: ) $39 billion bid
for Potash Corp (POT.TO: ), a source with direct knowledge of the
matter said.

In response to the directive, Sinochem is holding meetings
with several banks, the source said on Friday, including
Citigroup (C.N: ), HSBC (0005.HK: ) and Morgan Stanley (MS.N: ) (Read more about the money market today. ).

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.

“They are being instructed,” the source said, adding the
order was issued late last week. “The chairman of Sinochem has
been asked to speak to other banks.”

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

One option being discussed is the possibility of Sinochem
linking with China’s $300 billion 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 Corp, said both sources who were not authorised to speak
publicly due to the sensitive nature of the discussions.

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

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

BHP CEO 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 Corp by third parties.

“This shows there’s credibility from Potash Corp, it’s not
just hot air. It’s not just a go-it-alone defence. There’s
quite a lot of activity in terms of discussions,” said the
source.

Chinese firms have also approached at least one big
Canadian pension manager about a rival bid. The disclosure on
Thursday by Alberta Investment Management Corp, which manages
some C$70 billion ($67 billion) in public sector pension funds,
was one of the first pieces of hard evidence to back rumors
that China is looking for a way to derail a BHP takeover.
[ID:nN02216980]

Potash shares in New York closed down 5 cents at $148.50,
while BHP’s London shares ended the day up 1.8 percent.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ More on the BHP bid [ID:nN22340110] Potash reserves/producers http://link.reuters.com/sum65n StarMine comparative data: http://r.reuters.com/meh36n Deal calculator graphic http://r.reuters.com/man27n ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

BHP’s bid for Potash Corp, coupled with consolidation moves
in the Russian potash sector, have also raised concerns among
other potash importers.

U.S. Awasthi, the head of India’s largest fertilizer maker
IFFCO, also expressed concerns about the M&A activity in the
potash sector.

“Everybody forgets one thing,” said Awasthi. “Everybody
thinks about industrial profit, but everybody forgets about a
farmer’s profit.”

India, one of the world’s largest potash importers, has no
production capabilities of its own and relies on imports. In
2008, India imported roughly 6 million tonnes of the nutrient,
with about a quarter of its needs being supplied by Canadian
producers.

Earlier this year, IFFCO acquired a 10 percent stake in
Calgary-based Americas Petrogas (BOE.V: ) and a 20 percent stake
in its GrowMax unit, which owns a potash brine project
currently being developed in Peru. However, India is unlikely
to attempt a move to block BHP’s takeover bid.

“In India we don’t have enough capital in our hands to make
a big move of this sort,” he said.

CANADIAN CONCERNS

In addition to concerns about job losses and declines in
royalty revenues in the event of a foreign takeover of Potash
Corp, Saskatchewan — the western Canadian province that is
home to Potash Corp — is especially concerned by a takeover
led by a Chinese state-owned entity.

“We want to be very circumspect about sovereign entities
from customer countries and their involvement in all of this,”
said Saskatchewan’s Premier Brad Wall in a television
interview.

Aside from political concerns, a bid from a Chinese
state-owned entity could face an additional layer of scrutiny
under the Investment Canada Act, notes Steve Szentesi, a
Vancouver-based lawyer who focuses on competition law.

“The over-arching consideration under the Investment Canada
Act, is whether a transaction is likely to be of net benefit to
Canada,” said Szentesi. “But in the case of state-owned
enterprises there is an additional layer of scrutiny on top of
the general net benefit to Canada test.”
([email protected]; +1 416 941 8185)
(Additional reporting by Narayanan Somasundaram in Sydney,
Michael Flaherty and Denny Thomas in Hong Kong, Tracy Zheng in
Beijing and Eric Onstad in London)
(If you have a query or comment on this story, send an email
to [email protected])

WRAPUP 4-China tells state companies to explore Potash bid