A rival offer for PotashCorp from China's Sinochem, which on Friday was highlighted to be "closely watching" events surrounding the potash giant, may be scuppered by regulators, bidder BHP Billiton believes.

State-owned Sinochem, which controls Sinofert, China's biggest fertilizer group, is widely viewed as the most likely company to challenge BHP Billiton for a tie-up with PotashCorp.

Sinochem has been widely reported as making initial inquiries with Canada-based PotashCorp.

On Friday Feng Zhibin, the Sinofert chief executive, said that both Chinese companies "will continue to closely watch" BHP's $39bn bid. He added that the groups had maintained "very good relationships" with PotashCorp, whose approach from BHP had a "significant impact" on Sinofert.

'Regulatory issues' 

However, BHP's chief executive, Marius Kloppers, expanding on his dismissal on Wednesday of talk of a rival suitor, said that China's position as the world's top potash importer, much of which it buys from Canada, was a complication to a bid.

Canada's government was likely to have regulatory "issues" about a potash customer merging with a producer, he told analysts at a meeting on Thursday.

He also flagged the group's desire to sell its own potash, should its PotashCorp bid succeed, rather than market through the Canpotex consortium, which also includes Agrium and Mosaic.

BHP has already attempted a comparable reform of iron ore markets.

Key meetings 

The comments come amid a charm offensive by BHP which, besides needing regulatory approval itself for its tie-up plans, is attempting to appeal direct to PotashCorp shareholders, having failed to win board approval for its $130-a-share bid.

Major PotashCorp investors include Capital World Investors, RBC Asset Management, BlackRock, and Canadian pension fund giant CPP Investment Board.

Politically, the fate of PotashCorp is sensitive in part because of the taxes it pays on potash production. Saskatchewan, the province at the centre of Canadian potash output, received Can$1.4bn in potash royalties in 2009-09.

PotashCorp itself pays taxes on its first 5.7m tonnes of production, leading to fears that should a buyer ramp up output, and so depress potash prices, Saskatchewan's takings would in fact suffer.

Mr Kloppers told analysts on Thursday that reforms to the potash sales regime would come before efforts to grow PotashCorp production.

A PotashCorp acquisition which led to an arrangement for cut-price potash sales would also cut the province's revenues.