SINOCHEM and Chinese sovereign wealth fund CIC are exploring a joint counter-bid for Potash Corporation on instruction from Beijing.

Bankers cautioned that a bid would proceed only if the Chinese companies could secure approval from Canadian regulators.

It is understood Chinese authorities have contacted their counterparts in Canada to seek guidance on whether a bid for the Saskatchewan company would be blocked -- an outcome that would be politically embarrassing for China.

The edict from Beijing has come to light as it emerged that Chinese investors have approached several large Canadian and North American pension funds in an effort to build an international consortium and mount a stealth counter-bid to BHP Billiton's move on the fertiliser giant.

China thinks a consortium including Canadian pension funds might be more palatable to regulators than a Chinese-only bid.

Hong Kong-based insiders close to the deal said "at least two" state-owned Chinese companies had been ordered to run the numbers on an outright bid for Potash or a stake that would prevent BHP Billiton taking control.

An outright bid is regarded as a more likely option because stake-building would require the tacit consent of Potash's board.

Such permission could expose the company's directors to class action lawsuits if BHP's approach failed and the share price fell.

The edict is seen as an indication of Beijing's increasing unease over the BHP bid and the control the mining company would gain over such a fundamental raw material.

Bankers said Beijing had told a number of companies to get investment bank advice on a deal -- an edict that has triggered a feeding frenzy in Hong Kong and Shanghai as banks vie for what could be the biggest coup in Chinese merger and acquisition history.

Sinochem, widely viewed as the strongest candidate to mount a bid for Potash, is understood to have met representatives of more than six investment banks over the past week, including HSBC, Morgan Stanley, Citigroup, Nomura, UBS and Deutsche Bank.

The Wall Street Journal reported last week that HSBC would be lead manager.

The same insiders said the $US300 billion CIC would "undoubtedly" have been contacted as a potential backer of any bid, but it was likely the sovereign wealth fund would provide more than 15-20 per cent of the funding for an outright takeover bid.

The approaches clearly signal Beijing's interest in derailing the $US39bn BHP hostile bid for Potash.

The Chinese efforts to assemble a bidding consortium, which so far appear to have been unsuccessful, come amid increasing evidence that Beijing is actively encouraging industrial or financial investors to enter the fray before the world's largest producer of fertiliser falls to an old adversary.

Although Potash had rejected the BHP offer, a raised bid by the mining giant would stand a better chance of regulatory success than a bid by a single Chinese player or consortium, Canadian legal experts said yesterday.

The Chinese consortium strategy might be an attempt by Beijing to lower the profile of China in a counter-bid and persuade Potash and its stakeholders to be less wary of Beijing's hand in the game, analysts said.

Since BHP launched its bid for Potash last month, speculation has centred on the likely response of China, the world's largest consumer of commodities.

Opinion is sharply divided on whether state-owned Sinochem might bid on its own, whether a consortium might form behind CIC or whether China might abandon the idea of bidding.

Source: The Australian