The Chinese – and more specifically, Sinochem – gained a respite this week from frenzied counter-bid speculation surrounding BHP Billiton’s hostile bid for PotashCorp, following a $1.75bn bond issue by Brazilian mining giant Vale.
The mid-week debt issue switched the focus of bid rumours, triggering speculation that the Brazilian miner could be considering acquisitions in the fertiliser sector – possibly even a counter-offer to BHP’s hostile $38.6bn bid for PotashCorp, reports the FT.
Vale denied that it was considering such a bid and said it wanted the funds only for general corporate purposes, and to take advantage of new demand for higher yielding assets.
However, while relatively small in the broader scheme of things – and tiny if indeed, a $39bn-plus bid is being considered – Vale’s $1.75bn issue comes on top of its earlier $1bn bond issue. As Bloomberg reports, with a total of $2.75bn in debt issued this year, Vale has now surpassed Banco Bradesco as the biggest Brazilian issuer of overseas bonds..
That’s a lot of “general” use for the money. One emerging market debt strategist, Bevan Rosenbloom with RBS, told Bloomberg:
“I half believe them [Vale]… They always have something up their sleeve. In the fertilizer business, which they want to get into, there’s still some consolidation to go and they want to be part of that….
And as one Brazil-based investment banker told the FT on Friday: “I think Vale is certainly looking at PotashCorp, but I’m not if sure it is willing to pay the big price tag… But they are in a strong financial position and could certainly technically afford it.”
Indeed, with net debt of about $10bn, a market cap of $145bn, (according to Credit Suisse data) and a solid record in capital markets, Vale could raise the capital for a rival bid of more than $39bn, analysts believe.
The FT’s Vincent Bevans, writing on BeyondBrics, notes that the general consensus amongst bankers and analysts is that while Vale could certainly afford a strong counter-offer for PotashCorp, “the question is if that kind of big acquisition is in its best interests at the moment?”.
Vale has fertiliser investment plans of its own, and has set aside $12bn recently for investments in the sector, though from the miner’s point of view, money is likely to be best spent on organic growth in projects it already has, adds the report, noting that acquisitions however should not be ruled out.
More broadly, Vale’s debt issue alongisde that of Telemar, Brazil’s largest fixed-line phone company, has made Brazilian companies the top international bond issuers this week, notes Bloomberg in a separate report.
Telemar’s $1bn issue and Vale’s $1.75 issue led a total of $4.2bn that Brazilian companies issued in international markets this week alone - the most since the week ended Oct. 23, when there were sales worth $4.5bn, according to Bloomberg data.
Meanwhile, the $39bn fertiliser takeover plot thickens.
The Australian reports that Canada’s prime minister Stephen Harper on Thursday weighed into the battle over Saskatchewan-based PotashCorp, saying his government would “thoroughly analyse” concerns over a foreign takeover of PotashCorp.
And in another, murkier aspect of the bid, the WSJ reports on Friday that the SEC is investigating possible broader involvement in an insider trading case it brought last month over BHP’s PotashCorp bid. It continued:
[SEC] investigators are struggling to establish a connection between the two men charged last month with insider trading ahead of BHP Billiton‘s $40 billion bid for Potash Corp…prompting a widening search to determine whether other individuals may have been involved.
The difficulty of finding an obvious link between the men deepens the mystery of a case that involves two suspects who, on the surface, would appear to have little in common. Juan José Fernández García, 35 years old, is a research analyst at Banco Santander SA in Madrid; Luis Martin Caro Sanchez, 36, was last known to be employed at a shoemaking firm outside the city.
So far, according to the Journal and other reports, the SEC has been unable to prove a link between the two men, who allegedly gained more than $1m from trades after buying PotashCorp call options just days before BHP’s $39bn hostile bid in August.
With insider intrigue thrown into the mix alongside acquisitive Anglo-Australian miners, Chinese conglomerates, Singaporean sovereign wealth funds and now, rumours of Brazilian interest, the fertiliser heart of provincial Saskatchewan is looking more appealing by the day.
Related links:
In depth: BHP-PotashCorp – FT
More intrigue in the wonderful world of potash – FT Alphaville
Potash: We have contact – FT Alphaville
BHP’s potash war gets personal – FT Alphaville