The Conversation (0)
The drama surrounding the who, what, where, when and how concerning a bid for Potash Corp of Saskatchewan is heating up. There has been a great deal of attention centered on companies in China potentially fending off a bid from BHP with the majority of this focus aimed towards Sinochem Group, China’s biggest fertilizer trader.
By Leia Michele Toovey- Exclusive toPotash Investing News
These rumors gained momentum over the past few days when Caijing magazine issued a report in which Sinochem Group Vice President Han Gensheng said that even a $10 billion bid for Potash Corp. of Saskatchewan Inc. was unlikely. No sooner had this report showed up than it disappeared. And today, Caijing issued a retraction.
The reported claimed, citing Han Gensheng directly, that even a US $10 billion bid would be out of Sinochem’s comfort zone. “The purchase doesn’t make financial sense,” Han said, according to the magazine. The purchase would need approval from the Canadian government, and a Chinese state-owned company may lack the experience in handling queries.
After the retraction was issued, an altered article remained on the website. The article now suggests that China’s cabinet, the State Council, is still considering a request from the chemical giant Sinochem for financial aid in making a bid for Potash Corp. “Canada historically hasn’t been receptive to acquisitions by state-owned enterprises,” Glyn Lawcock, an analyst at UBS AG, explained. Lawcock said China is unlikely to make a bid. The Chinese government hasn’t received any applications from companies to bid for Potash Corp., Ministry of Commerce spokesman Yao Jian said today in Beijing at a briefing. A Sinochem spokesman, who declined to be identified because of company policy, said Han didn’t make the comments attributed to him by Caijing.
Potash Corp. has been forward in the fact that it will seek other suitors should BHP turn up the heat on their hostile bid, although the company is still comfortable in its own skin to remain an independent stand-alone. The lack of a Chinese counteroffer so far may strengthen Melbourne-based BHP’s bidding position, and success will give the world’s biggest mining company more control over the supply of commodities into China. There are few companies that can compete with BHP.
In the meantime, Chinese investors have approached Alberta Investment Management Corp. to consider a joint offer for Potash Corp., the Canadian pension fund said September 2nd. Any Chinese offer would have to overcome objections from the Saskatchewan government. A state-owned company may lower prices which won’t be in the interest of taxpayers, the province’s Energy and Resources Minister Bill Boyd said.
China, the world’s largest consumer of metals, said its companies haven’t applied to bid for Potash Corp. The Chinese government is willing to admit that if BHP turns up the heat, they will use anti-monopoly rules to try and fend off the creation of a potash super power; a move that would likely lead to China paying higher prices for a commodity that it is in dire need of.
There was a brief rumor this week, that Canada’s largest diversified miner, Teck Resources (NYSE:TCK), would play a role in the creation of a consortium that could challenge BHP’s potash bid. However, as soon as that rumor surfaced, it was squashed. Teck Resources announced on Wednesday that this was not the case. “We’re not involved,” Teck chief executive Don Lindsay said when asked about the company’s role in a possible rival bid.
The M&A frenzy set off by BHP Billiton’s bid for potash may delay the possible sale of Russia’s two top potash producers, Silvinit and Uralkali. Before BHP’s bid surfaced, it seemed that a quick sale, or conglomeration was possible; now, it seems the owners of the companies are keen to wait. “Not everyone would like to sell their companies to foreign investors,” Yuri Soloviev, the chief executive of VTB Capital, whose state-controlled parent provided financing for the buyouts. Rio Tinto (NYSE:RIO) and Canada’s Potash Corp have considered buying into Uralkali, which has a market capitalization of about $9.9 billion.
In the background, a report released this week showed just how easy it was for BHP to seek the cash flow that it would have needed, if the bid for Potash went through. BHP Billiton Ltd.’s loan underwriters attracted in excess of the $45 billion sought to fund the miner’s bid for Potash Corp. of Saskatchewan Inc. The financing was oversubscribed by new lenders three weeks after Banco Santander SA, Barclays Capital, BNP Paribas SA, JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc started marketing the deal Aug. 18. Lenders were asked to provide $2.5 billion to join the syndication. Underwriters of loans, which take the bulk of fees paid by a borrower, seek to reduce the amount they lend by syndicating the credit to a wider group of banks and money managers.