China 'paying close attention' to BHP-Potash deal

[September 15, 2010]  BEIJING (AP) -- China is closely watching global miner BHP's $38.5 billion bid to acquire one of the world's biggest producers of potash and fertilizer, the government said Wednesday in its first official comment on the proposed takeover.

Beijing is uneasy about seeing BHP Billiton Ltd., already a major iron ore supplier to Chinese steelmakers, gain control of Potash Corp. of Saskatchewan, expanding its control over key commodities that China needs. Potash, a mineral, is used to make fertilizer.

"China is highly reliant on potash imports," said a Commerce Ministry spokesman, Yao Jian. "We will be paying close attention to this deal."

Potash rejected BHP's initial bid and says it has talked with other parties in what is likely to be a lengthy process.

"Potash is the critical factor in every country's agricultural production," Yao said at a regular news briefing. "Of course, this is attracting attention from the world potash industry and also from Chinese industry."

BHP is hoping to profit from what it expects will be rising fertilizer demand in China and India -- the main markets for potash, along with the United States and Brazil.

The bid is sensitive for China because the communist government faces pressure to feed 1.3 billion people on limited farmland and sees food supplies as a matter of national security.

Asked whether China has officially expressed concern to Canada, Yao said his ministry's monopoly bureau told him, "we have had no official contact with them."

Chinese state media have warned that a concentration of control over potash production might force up prices for major grain producers, especially developing countries.

"A BHP potash monopoly will harm global interests," government-run China Central Television said in a Sept. 4 report. "Rising potash prices already are unbearable for Chinese farmers."

China regularly clashes with potash producers over prices. Contract talks with Canadian suppliers broke down this year after Beijing demanded a much lower price than they would accept.

Potash rejected BHP's offer last month as "wholly inadequate" and company CEO Bill Doyle said this week it has talked with other parties. In a note to shareholders, Doyle said Potash can hold out indefinitely for a better offer and the process "will be more like a marathon than a sprint."

BHP is likely to face an anti-monopoly review by China because Potash owns a 22 percent stake in Sinofert Holdings, Ltd., China's biggest potash producer and fertilizer importer.

Yao said Chinese regulators would review the bid if they receive a formal application.

The head of a major Canadian pension fund said this month a Chinese investment fund is exploring a joint bid for Potash. The fund boss said he rejected an invitation to join in a Chinese bid.

Yao declined to say whether Sinofert, a unit of government-owned Sinopec, or China Petroleum & Chemical Corp., was involved in a possible bid.

Saskatchewan's resources minister, Bill Boyd, expressed concern last week about a possible bid from a Chinese state company, which he said the government worries would want to overproduce potash and drive down its price. Canadian law allows the government to bar foreign acquisitions if they are not a "net benefit" to Canada.

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Chinese Ministry of Commerce: http://www.mofcom.gov.cn/

[Associated Press; By JOE McDONALD]

AP researcher Bonnie Cao contributed.

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