Sinochem Said to Struggle to Get State Support for Potash Bid
Sinochem Group, China’s largest fertilizer trader, may struggle to get state financial backing for a takeover of Potash Corp. of Saskatchewan Inc., making a deal unlikely, said two people with knowledge of the matter.
China’s government has indicated it would prefer Sinochem to finance any takeover without credit from state banks, which may put the transaction beyond the company’s reach, the people said, asking not to be identified because of confidentiality. Sinochem may still consider seeking a minority stake, a deal that would be easier to fund, one person said.
Potash Corp., the world’s largest producer of its namesake crop nutrient, in August rejected Melbourne-based BHP Billiton Ltd.’s $40 billion offer as too low and said it’s seeking other bids. Without government backing, state-owned banks are unlikely to provide takeover financing to Sinochem, the people said.
“If you give a super-high price, Canada will allow it to be sold, but does it make sense for China to buy?” said He Wei, a Beijing-based analyst at BOCOM International Holding Co. “If you look at history, China hasn’t made any successful deal of that size so far.”
China’s largest overseas acquisition was China Petrochemical Corp.’s C$8.3 billion ($8.2 billion) purchase of Addax Petroleum Corp. last year, and the biggest resource investment was Aluminum Corp. of China’s 7.2 billion pound ($11.5 billion) purchase of a stake in Rio Tinto Group with Alcoa Inc. in 2008.
Potash Corp. fell 48 cents, or 0.3 percent, to $140.90 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have risen 30 percent this year. BHP is offering $130 a share for Potash Corp.
BHP fell 15 pence to 2,122.5 pence in London trading.
State-owned Sinochem had explored taking a majority stake in Saskatoon, Saskatchewan-based Potash Corp. and was looking to involve Canadian pension funds or other Canadian investors to boost support for a deal, people familiar with the plan said last month. Authorities had allowed Sinochem to begin piecing together a bid, the people said at the time.
A call to Li Qiang, a spokesman for Sinochem, went unanswered. Chinese businesses are closed for the weeklong National Day holiday. Potash Corp. spokesman Bill Johnson didn’t respond to a call outside of business hours.
Sinochem Group, parent of Sinochem Corp., is listed as a key state-owned company under the nation’s State-owned Assets Supervision and Administration Commission of the State Council. The group, incorporated in 1950, posted a record gross profit of 8.7 billion yuan ($1.3 billion) in 2008 on sales of 300 billion yuan, according to the latest information on its website.
“A less risky and more practical way may be minority stock holding rather than taking the whole of the company,” said Allen Jiao, a Shanghai-based analyst at UOB Kay Hian Investment Co. “Chinese companies still lack experiences in managing a global company.”
Chinese companies have announced resource and energy acquisitions worth a total of $30 billion this year compared with $58 billion in 2009, when state-owned Aluminum Corp. of China was stung by its failure to invest $19.5 billion in Rio Tinto.
A Chinese offer also would have had to overcome the objections of Saskatchewan Energy and Resources Minister Bill Boyd, who said Sept. 2 that offers by state-owned enterprises wouldn’t be in the interest of the Canadian province.
The lack of a Chinese counteroffer would 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, the largest consumer.
China is the world’s largest user of potassium fertilizer and relies on imports for more than half of its needs. It’s the second-biggest importer of potash after India.
Chinese companies have failed to successfully acquire some agricultural assets in the past three years. China National Chemical Corp., backed by buyout fund Blackstone Group LP, ended talks to buy Nufarm Ltd. in 2007 after a study of its accounts. Sinochem Corp.’s attempt to buy Nufarm last year was stymied when Japan’s Sumitomo Chemical Co. bought a 20 percent stake in Australia’s largest farm chemicals supplier.
China’s Bright Food Group Co. lost out on the bid to buy CSR Ltd.’s sugar unit in July after Singapore’s Wilmar International Ltd. offered A$1.75 billion ($1.73 billion) for Australia’s biggest sugar refiner.