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 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 Thursday said Sinochem had hired HSBC to advise on op-tions 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 authorised 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.
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 defence. There's quite a lot of activity in terms of discussions," said the source. Chinese firms have also approached at least one big Canadian pension manager about a rival bid.