Chinese officials have ordered state companies to meet investment bankers to explore ways to block BHP Billiton's $39 billion bid for Potash Corp, a source with direct knowledge of the matter said.
In response to the directive, Sinochem is holding meetings with several banks, the source said on Friday, including Citigroup, HSBC and Morgan Stanley.
The order from Beijing underscores the seriousness with which China is taking the potential BHP-Potash tie up and its implications for the pricing and supply of the crop nutrient, despite obstacles to launching a successful counter-bid.
They are being instructed, the source said, adding the order was issued late last week. The chairman of Sinochem has been asked to speak to other banks.
A Wall Street Journal report on Thursday said Sinochem had hired HSBC to advise on options pertaining to Potash Corp.
One option being discussed is the possibility of Sinochem linking with China's $300 billion sovereign wealth fund CIC, according to a second banking source familiar with the matter.
The most likely scenario is that China will consider buying a blocking stake, rather than attempt a complete takeover of Potash Corp, said both sources who were not authorized to speak publicly due to the sensitive nature of the discussions.
Assuming a consortium pays a 20 percent premium to Potash's market price, a 15 percent stake would cost about $8.3 billion.
Sinochem and the banks declined to comment. CIC could not immediately be reached.
BHP CEO Marius Kloppers has poured cold water on the possibility of a rival bid but another source close to the situation in Europe said the latest developments are evidence of solid interest in Potash Corp by third parties.
This shows there's credibility from Potash Corp, it's not just hot air. It's not just a go-it-alone defense. There's quite a lot of activity in terms of discussions, said the source.
Potash shares in New York edged down 0.4 percent to $148 by 1620 GMT, still 14 percent higher than BHP's $130 a share bid. BHP's London shares closed 1.8 percent higher as the mining sector took heart from higher than expected U.S. jobs data.
Chinese firms have also approached at least one big Canadian pension manager about a bid for Potash Corp. The disclosure on Thursday by Alberta Investment Management Corp, which manages some C$70 billion ($67 billion) in public sector pension funds, was one of the first pieces of hard evidence to back up speculation that China is looking for a way to derail a takeover of the Canadian company.
The possibility of Chinese involvement in a valuable Canadian resource has raised concerns in Saskatchewan, which is worried that a takeover of its largest company by a foreign firm or major customer could affect jobs and government revenue.
For its part, BHP had been eyeing a major acquisition in the oil and gas sector over the past year, but was unlikely to move on its ambitions while it is tied up with its bid for Potash Corp, a source said on Friday.
BHP, flush with cash since abandoning a 140 billion takeover of Rio Tinto in 2008, has been seeking deals to cement its position as the world's largest diversified miner.
It considered, then abandoned, a joint offer with Royal Dutch Shell last year for Australian oil and gas firm Woodside Petroleum worth some A$35 billion ($31.9 billion), the Australian newspaper reported on Friday.
BHP declined to comment on the report, which also cited an unnamed global energy industry figure as saying it may also be interested in Anadarko Petroleum Corp.
The problem with Woodside is it is a very expensive oil company and because there is always takeover speculation, it is very hard to make the numbers work, a source familiar with the situation told Reuters.
BHP chief Marius Kloppers is focused on wooing Potash shareholders and BHP's own investors about the merits of the offer. He is expected to spend the next few weeks shuttling between Europe and North America as he tries to clinch his first major deal after three years in the post.
They are pretty busy right now, but they are a big company so within six to 12 months of getting one deal done there could be presumably be another one, the source added.
(Additional reporting by Narayanan Somasundaram in Sydney, Rod Nickel in Toronto, Michael Flaherty and Denny Thomas in Hong Kong, Tracy Zheng in Beijing and Eric Onstad in London; Editing by Hans Peters and David Holmes)