SYDNEY/TORONTO China's Sinochem Corp has hired banks to advise it how to foil BHP Billiton's (BLT.L) (BHP.AX) $39 billion bid for Potash Corp (POT.N)(POT.TO), two sources with direct knowledge of the matter told Reuters.
The state-owned chemicals group had hired Deutsche Bank (DBKGn.DE) and Citigroup (C.N) for the purpose, the sources said after BHP extended its offer for Potash, the world's largest fertilizer group, by a month to November 18 to provide Canada's competition regulator with more information.
"Sinochem has been given an extra window of a month within which to decide whether and how they are going to bid," said London-based analyst Dominic O'Kane at Liberum Capital.
"Clearly a large component of that will be determining whether they will get regulatory approval in Canada. If they think they will get regulatory approval, they will bid. If they don't, they won't," he added.
Anglo-Australian miner BHP has said it would not be caught up in an expensive bidding war.
Deutsche Bank and Citigroup declined to comment. Sinochem could not be reached for comment on Wednesday, a public holiday in China.
Though it was still unclear whether a serious rival bid from a Chinese consortium would emerge, news of the banking mandates could indicate China will try and stymie the deal with a rival offer or by buying a blocking stake in Potash.
Interest in Potash is being fueled by an expected surge in fertilizer demand from China, India and other emerging economies due to rising food consumption.
Late on Tuesday in Canada, BHP Chief Executive Marius Kloppers said he was unconcerned by the possibility of a rival bid emerging and that the miner would rather drop its bid than raise the offer to a level that exceeded good value for its shareholders.
"If somebody offers a price at which we cannot demonstrate value for our shareholders, we're probably not going to show," Kloppers said in an interview with Canada's Business News Network.
BHP shares were up 1.7 percent in London, in line with a 1.6 percent rise in the FTSE 350 mining index .FTNMX1770.
Potash's U.S.-listed shares closed at $147.5 on Tuesday, 13.5 percent above BHP's $130 offer, suggesting investors anticipate a higher bid.
Given the political obstacles in Canada, any Chinese bid would have to be part of a larger consortium to have a chance of succeeding, analysts said.
One obstacle facing officials in Beijing is that China, as a top consumer of potash, would want to keep prices low for the vital crop nutrient, whereas most consortium members would want to maximize returns with higher prices.
China sovereign wealth fund CIC CIC.UL has been mentioned as a potential Sinochem partner, but even a $300 billion fund has limits on how much it can spend.
However, Sinochem could foil BHP's offer as China's Chinalco did in 2008 when it joined forces with Alcoa Inc (AA.N) to buy a stake in Rio Tinto (RIO.AX), which was subject to a hostile bid from BHP at the time.
Sinochem has approached Singapore's Temasek Holdings TEM.UL to join a consortium that might bid, sources have previously told Reuters.
BHP BOSS LOBBIES CANADA
In a separate interview with Canada's Globe and Mail newspaper, Kloppers said BHP was sticking with its plan to drop out of the Canpotex potash marketing cartel -- effectively triggering its demise -- if BHP's bid succeeds.
He spent the day in Toronto, Canada's financial hub, drumming up support for the bid and seeking to allay concerns BHP's strategy would hurt Potash's home province of Saskatchewan.
BHP says all of Saskatchewan's low-cost producers would benefit from market-based pricing, generating more revenue for the province, but sources working on the deal told Reuters that the miner would not move quickly to dismantle Canpotex.
Kloppers said BHP was focused on clearing regulatory hurdles in Canada and the United States, not on potential rivals.
"Crucially, who is going to make the decision on this is going to be the Saskatchewan treasurer, deciding whether or not he will increase or reduce his tax revenue compared to whether Sinochem owns it or BHP," Liberum's O'Kane said.
Sources working on the deal said regulators wanted more details about BHP's plans for its existing Jansen potash project in Saskatchewan and its marketing strategy.
Some opponents of the deal specifically object to the prospect of a break-up of Canpotex, which accounts for a third of global potash exports and has helped buoy prices for years. Potash Corp is one of three Canpotex members.
Kloppers is due to meet Canada's leading opposition parties on Wednesday, but will not meet Prime Minister Stephen Harper.
BHP has hired three former advisers to Canadian prime ministers to help build political support.
(Additional reporting by Julie Crust in London, Joseph Chaney in Hong Kong, Michael Erman in New York and Euan Rocha and Cameron French in Toronto; Writing by Michael Flaherty; Editing by Anshuman Daga and Will Waterman)