Sinochem Participates In Bidding For Potash Trading

In October 1st, on the occasion of China's national day, the Conference Board of Canada announced a response.

This is almost equal to the announcement.

However, for

Regardless of whether CIC is investing in Nakagawa or whether other Chinese investors are investing in local potassium mines in Canada, the local government's concerns in the Potash paction are obstacles that Chinese enterprises must resolve in the future.

Death report

The Canadian advisory board, which claims to be a non-profit organization, does not engage in lobbying with interest, but is often employed by the government. It is hired by the government of Saskatchewan, where Potash is located, to study the opportunities and risks of Potash being acquired.

Researchers from Canada's consulting Bureau divide Potash's potential purchasers into three categories, one is BHP Billiton, and the other is similar to Chinese state-owned enterprises such as Sinochem buyers, as well as sovereign wealth funds, PE funds or pension funds and other financial investors.

The report concluded that BHP's acquisition of Potash could take advantage of Potash's preferential tax policy to reduce the tax payable to the Jansen potash project currently under development, which amounted to nearly $2 billion in ten years.

However, the report believes that Sinochem may have a greater negative impact and put forward a serious warning: "a bigger worry is the financial implications of a significant reduction in the operation of world potash prices.

If the buyer chooses to ignore market rules and compete for market share through high production and low prices, it is unlikely to be on BHP Billiton, but it is possible that the financial implications of SA will be very significant.

According to the Canadian advisory board, the price of potash fertilizer brought down by this strategy will bring about a tax loss of ten years and 5 billion 700 million Canadian dollars to the local government.

The report thinks that Chinese companies are likely to adopt this strategy.

"We think BHP is unlikely to pursue such a strategy, because this is not the best way for them to get the biggest return on investment.

BHP Billiton is more likely to comply with market rules so as to prove its premium for acquiring Potash. "

The report points the risk maker to Chinese acquirers.

"SA should pay attention to bidding from state-owned enterprises such as Sinochem, especially considering that it is a state-owned enterprise from a major importing country (China).

State owned enterprises such as Sinochem do not face constraints such as BHP Billiton, which is more likely not to support potash prices according to market rules.

Sinochem has a strong incentive to lead the world market towards price competition, which will undoubtedly damage producers in SA and the global potash producers.

China is one of the few countries in 2009 that did not cut potash production in response to falling demand and falling prices.

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Divergence of opinion

Just before the Canadian Advisory Board's report was published, the South China Morning Post quoted sources as saying that Sinochem International (Holdings) Limited by Share Ltd, which is under Sinochem Group, is negotiating with the lenders to provide financing for the bidding Potash company to challenge BHP's offer of $39 billion.

Reported that the negotiations between Sinochem International and domestic and foreign banks are still at an early stage, and SINOCHEM has not yet decided whether to launch a takeover to Potash.

The Canadian Advisory Board's report will be a severe warning for Sinochem.

In the past, people in the industry disagreed on the purchase of Sinochem. The reason of the supporters was that they emphasized the strategic importance of potash fertilizer to China's agriculture.

The analysis of Chinese companies' participation in bidding is based on the assumption that BHP has successfully acquired Potash, and the monopoly pattern of the potash market will further intensify, so that the potash market will evolve into another "iron ore" market.

However, within the decision-making circles responsible for China's foreign investment, there is no negative opinion about Chinese enterprises' participation in Potash pactions.

The China International Capital Co (hereinafter referred to as CICC) recently issued a research report. From a strategic point of view, Potash's bid price and valuation are all high, and the cost of mergers and acquisitions is high.

Potash fertilizer has long been a monopolistic market. The world's two largest sales alliance of Potash (Canada's Canpotex alliance and the former Soviet Union's BPC+IPC sales Union) controls 70% of the world's capacity, and the top ten enterprises control 96% of the world's capacity.

The CICC report holds that if BHP can acquire and continue to develop its Jansen Lake project in Canada, its capacity in global control will increase from 17.2% in 2009 to 28.4% in 2015.

But China believes that this does not mean that China has no countermeasures at all.

According to public information, there will be at least 1 million 700 thousand tons of capacity release in China in the next few years. Therefore, by 2015, China will have more than 6 million tons of potash fertilizer at home and abroad, and China Gold estimates that the amount of potash fertilizer will be stabilized at 11 million -1300 tons in the future, and the dependency ratio of China's potash fertilizer in 2015 will be about 46%-51%, which is lower than that of 68% in 2003 -2007.

"In 2008, domestic farmers saw that potash was too expensive, and they chose to apply less or no potash fertilizer."

Zheng Mianping, an academician of the Chinese Academy of engineering and an expert in potash salt of the Chinese Academy of Geological Sciences, told the reporter that this is related to the use characteristics of potash fertilizer. One or two years without potash fertilizer will not have a significant impact on land and agricultural harvest, so the short-term consumption of potash has certain elasticity.

After the announcement of BHP Billiton's offer, the market value of Potash climbed all the way, and the cost of Chinese enterprises' participation in bidding increased greatly.

By September 16th, the market value of Potash has risen to US $43 billion 600 million, which is equivalent to 5.8 times the average annual global potash trade volume of US $7 billion 500 million over the past five years, equivalent to 22 times the average annual imports of 1 billion 980 million US dollars in the past five years.

China's launch is equal to the one-time import cost of potash fertilizer for China in the next 22 years.

An analyst unwilling to disclose the name of CICC's strategic research department told the magazine that the supply and demand of the global potash market will maintain a basic balance in the medium to long term.

At present, the mainstream view of international investment banks is that the price of medium and long term potash will rise steadily or basically equal to the current level, and it is hard to see another sharp rise.

"Obtaining potassium resources overseas is necessary, but in the current price and market atmosphere, the choice of bidding for Potash companies is more costly and risky."

Analysts at CICC said.

How to sell

"Should Chinese enterprises follow suit like this? What do we want to buy from BHP Billiton? What do we follow? What do Chinese enterprises want to do if they want to buy it? Why do we have to wait for the price to be fired?" we have been clamoring for lack of this, but we lack the overall consideration and unified deployment.

Overseas executives of a Chinese resource enterprise told reporters that it is not necessary to eat a big Mac like Potash. Chinese enterprises can follow the example of Chinalco in Rio Tinto's mode and participate strategically.

Sinochem Group is the largest integrated enterprise of agricultural inputs (fertilizers, pesticides and seeds) in China. It is in line with Potash's main business. Potash currently owns 22.06% of Sinochem's chemical fertilizer (00297.HK).

Since the acquisition of BHP Billiton has surfaced, Sinochem has become the most competitive potential buyer in the market.

Sinochem spokesman did not comment on the participation of Sinochem, but expressed concern about the matter.

The financial times has previously reported that Sinochem employs Deutsche Bank and Citigroup as its financial advisor, and Potash has approached the Sinochem Group many times.

However, a source close to Sinochem told the correspondents that Sinochem had internal opinions that Potash wanted to bid for Chinese companies to bid, and lacked sincerity in cooperation. It was difficult to swallow Potash only by relying on bank loans.

The industry has always doubted the possibility of Sinochem's participation.

An executive who has worked in BHP Billiton has told the correspondents that Sinochem has not enough financial resources (assets of only $about 20000000000). It is not a very experienced player in the international market. With the status of China's central enterprises, it is hard to get the recognition of the sellers and the Canadian government.

As for another possible participant, CIC is indeed interested in potash mine, not only has contact with Potash, but also contacted the nakawa mining industry, which also owns potash deposits in SA Province, Canada.

However, a person familiar with the matter revealed that CIC thinks Potash is too overvalued and has no strong interest.

Whether in Sinochem or CIC, one of the real questions that we have to consider is how to make the Canadian government reassured to accept investors from China. Brad Wall, Canada's Saskatchewan governor, has indirectly expressed opposition to the fact that a large number of companies from one of the largest importers of potash fertilizer in the world's largest Potash Corp Potash are not in the best interests of Saskatchewan. Potash

The Canadian Advisory Board's report further confirms the worry of Governor Sarah, and also identifies two issues of concern to the local government: Taxation and employment.

The report suggests that when approving the paction, the Canadian government can add conditions to require the purchaser to retain the headquarters in the province, and the senior officials to live in the area, etc. at the same time, the tax policy can be adjusted to get a reasonable financial revenue.

No matter whether Chinese enterprises participate in the bidding of Potash companies, they need to consider how to eliminate the worries of the Canadian government in the future.

Cooperation with other foreign investors or Chinese enterprises is an inevitable choice.