Indiana Lets County Seek $1.3 Billion Fertilizer Deal

Governor Mike Pence won’t block Indiana’s Posey County from selling $1.3 billion in bonds to finance a fertilizer plant backed by a Pakistani company near the Illinois state line.

Pence, a Republican, pulled state support from the project in May because of concerns raised by the Pentagon that Lahore-based Fatima Group makes calcium ammonium nitrate fertilizer used in explosives targeted at U.S. soldiers in Afghanistan.

“Governor Pence respects the prerogative of local officials to continue to explore the possibility of moving forward,” Christy Denault, a spokeswoman, said yesterday in a statement. She said the governor “has instructed the Indiana Finance Authority not to stand in the way of Posey County officials pursuing the project on their own.”

Dropping state support jeopardized a $1.3 billion tax-exempt municipal-bond sale, which was set to be the biggest muni-junk offering ever. It also imperiled 700 full-time jobs the project would create in Indiana’s southwest corner. The county is weighing the sale of six-month securities by July 1 to refinance the state-issued notes, said John Taylor, executive director of the Posey County Economic Development Partnership.

The $1.3 billion that may be borrowed by the Posey County Economic Development Commission on behalf of the Midwest Fertilizer Corp., the plant developer co-owned by Fatima, would be used to refinance the Indiana debt and effectively end the state’s role in the project, according to Denault’s statement.

Meeting Today

The commission plans to meet today to discuss the process of refinancing the outstanding Indiana notes, Taylor said. The project, which will cost almost $2 billion to build, is forecast to generate $8.9 billion in economic activity in the region over its first decade, he said. Construction will create about 2,500 temporary jobs and take three years, he said.

“We’ve been hopeful that the governor would change his stance and approve the project,” Taylor said. “But we’re just as thankful that he’s removed some of his restrictions in allowing us to do what we need to do.”

Pence, 53, suspended the state’s backing when he took office in January, citing U.S. Defense Department concerns that Fatima’s Pakistani fertilizer plants produced material used in improvised explosive devices in Afghanistan. He cited a U.S. general’s congressional testimony which said the company, one of the biggest conglomerates in Pakistan, wasn’t cooperative with efforts to eliminate those threats to U.S. and allied forces.

New Development

Fatima has developed a less-volatile form of ammonium-nitrate fertilizer and has halted sales of its earlier product in regions of Pakistan that border on Afghanistan, Syed Ali Nasir, a company spokesman, said in March.

Municipal-bond investors have said the securities used to back the project would probably be speculative grade, or junk.

If graded that way, the county offering would be a bigger high-yield muni deal than a $1.2 billion sale by an Iowa agency in April, also to finance a fertilizer plant. The debt was rated three steps below investment grade by Standard & Poor’s.

Fatima has said it would work with local officials to “advance this critical project.”

Guggenheim Securities LLC would serve as the underwriter for the six-month county notes, Taylor said. Guggenheim was also senior manager for the state’s short-term issue to support the project. Posey is using Barnes & Thornburg LLP as its bond counsel.

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