CHICAGO — Indiana Gov. Mike Pence said late Friday he is pulling state support for a $1.8 billion, bond-financed fertilizer plant amid political concerns, but the plant's owners said they still hope to build the facility.

The clock is ticking for the plant's owners, who sold $1.3 billion of short-term notes in December through an Indiana state conduit to finance the first stage of the deal. The notes have a mandatory July tender date.

Pence's action Friday to withdraw other support and subsidies, does not affect the bonds, issued through the Indiana Finance Authority, though it will complicate efforts to put a permanent deal together for the facility.

Pence put the project on hold in January, just days after taking office and weeks after the borrowing, amid allegations that the Pakistan-based firm that owns most of the planned plant is tied to explosives used against Americans in Afghanistan and in the Middle East.

The U.S. Department of Justice said at the time that the Fatima Group, the parent company of Midwest Fertilizer Corp. which is building the plant, had been "less than cooperative" in efforts to reduce the use of its chemical in improvised explosive devices throughout Pakistan and Afghanistan.

Pence and Indiana officials spent the last four months reviewing the project. Pence said Friday that the company told U.S. defense officials that they have developed a less-explosive chemical, but the U.S. has not yet had time to test the product. Pence said he decided to withdraw a package of economic incentives offered through the Indiana Economic Development Corp. last November.

"I do not take this decision lightly," Pence said in a statement. "Economic development is important, but the safety and security of our soldiers in harm's way is more important."

The withdrawn subsidy package included $2.9 million in conditional tax credits based on the company's jobs and investment plans, said Pence's press secretary Kara Brooks. It also offered up to $700,000 in training grants. No incentives have been paid out.

The Indiana project is one of several fertilizer plants expected to come on line in the Midwest and across the country due to a surge in domestic production driven by a drop in natural gas prices.

The Indiana Finance Authority in December sold $1.26 billion of tax-free Midwest Disaster Area Bonds to finance the first stage. The debt was structured as notes with a July mandatory tender date. The structure allowed the company to qualify for the disaster area bond program, which expired in December, while giving time to finalize project details.

A letter from the president of the Indiana Economic Development Corp. noted the time-frame of the short-term financing structure, but said validation of the new product by U.S. officials could still take several months.

"We understand that the structure of your financing demands a quick resolution of these issues," the letter said. "While we remain hopeful that the steps taken by your company will yield positive results, we are not in a position to offer unqualified support given the lack of testing and validation."

After Pence's announcement, the company issued a statement saying it was disappointed with the decision but that it will it will "explore the full range of options," working with the Posey County Economic Development Partnership and the Economic Development Coalition of Southwest Indiana, to try to build the project. The company said the Fatima Group has started to track the chemical product and has suspended sales of a chemical used in fertilizer and explosives in the Middle East.

Proceeds from the Indiana deal remain in escrow and expire in July, when the company is expected to roll them into long-term debt, if it can pull together the deal.

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