Will Chile Block SQM Sale to Chinese Lithium Firms?

- March 19th, 2018

Chile’s new government has to decide whether to back a petition by Corfo to block the sale of a stake in SQM to Chinese lithium firms.

Chile’s new government has yet to decide whether it will back a petition to block the sale of a 32-percent stake in top lithium producer SQM (NYSE:SQM) to China’s Tianqi Lithium (SZSE:002466), Reuters reported on Monday (March 19).

Chilean development agency Corfo filed a complaint on March 9 claiming that the sale to Tianqi Lithium, or any related entities or state-backed firms, would “gravely distort market competition.”

SQM and Tianqi are “extremely close competitors … and were one to acquire an interest in the other — even minority — it would have serious anti-competitive impacts on the market,” Eduardo Bitran, the now former head of Corfo, wrote in the complaint.

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Tianqi and SQM combined would control 70 percent of the global lithium market, the document filed with anti-trust regulator FNE says. Lithium is an essential component in the batteries used to power electric cars, and demand for the metal is expected to surge in the coming decades.

The 32-percent interest in SQM is being sold by Nutrien (TSX:NTR,NYSE: NTR), formerly Canada’s Potash Corporation of Saskatchewan, as part of regulatory conditions after its merger with Agrium.

At current prices, the stake is worth around U$4 billion, but Bitran told Reuters Tianqi’s offer was more than 20 percent over market value at the time it was presented.

The new government, led by billionaire Sebastian Pinera, took office on March 11, two days after Corfo’s complaint was filed. “We have not made a decision (to support or not support) in this case,” a government official told Reuters, speaking on condition of anonymity. “In this case, in particular, we must closely analyze the consequences.”

SQM has reportedly also attracted interest from China’s GSR Capital, Sinochem International (SHA:600500), battery firm Ningbo Shanshan (SHA:600884) and even mining giant Rio Tinto (ASX:RIO,NYSE:RIO,LSE:RIO), the only company outside of China.

Corfo’s complaint makes clear that Tianqi should be forbidden from purchasing the stake in SQM, but it is so far unclear whether, if upheld, it would also block all potential Chinese bidders.

“It’s an issue we need to assess,” the government official said. “The policy of Chile, in general, is to not block [such transactions] by nationality.” Regulator FNE has six months to decide whether to open an investigation on the case.

On Monday, shares of SQM closed down 2.42 percent in New York at US$47.48.

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Securities Disclosure: I, Priscila Barrera, currently hold no direct investment interest in any company mentioned in this article.

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