Indian petrochem giant in big buyout bid

Reliance Industries Ltd, owner of the world's largest oil-refining complex, bid for bankrupt chemicals and fuel maker LyondellBasell Industries AF, in what may be the biggest acquisition by an Indian company in two years.

The refiner and energy explorer controlled by billionaire Mukesh Ambani rose as much as 3.1 percent in Mumbai trading after offering an undisclosed amount of cash on Nov 21 to buy a controlling stake in Rotterdam-based LyondellBasell. Reliance could pay $10 billion to $12 billion for the closely held company, said Victor Shum, an analyst at Purvin & Gertz Inc in Singapore.

"With one single step they become a very significant global player, whereas Reliance can't get any bigger in India," said Shum, a senior principal at the energy consulting company. "It would instantly expand their presence in the US and Europe and would be a whole lot cheaper than building something new."

The purchase would give Reliance access to the US fuel market, the world's biggest, and make it the largest producer of polypropylene used in refrigerator casings. Reliance and India's Essar Group are bidding for plants overseas at a time when Royal Dutch Shell Plc and Exxon Mobil Corp are selling refining assets because of declining fuel demand and processing margins.

Ambani, armed with $4.2 billion in cash, told shareholders last week that "global growth by acquisitions" is the key to boosting revenue. About 97 percent of its assets are in India.

Reliance has said it is looking for assets abroad to reduce the risk of investing mostly in India, where it is battling a lawsuit over natural gas supplies with a firm owned by Mukesh's estranged brother, Anil Ambani.

Reliance's stock has gained 75 percent this year compared with the benchmark Sensitive Index's 77 percent gain. The shares rose as much as 2,189 rupees and were up 1.4 percent at 2,151.95 rupees at 10:46 am in Mumbai.

The Financial Times yesterday cited an unnamed person close to Reliance as saying the company plans to pay $10 billion for the stake. The Times of India, citing an unidentified banker, said yesterday the price may be at least $12 billion, while Economic Times, a sister publication, said it may range from $6 billion to $10 billion. Reuters reported a price of as much as $12 billion.

Reliance spokesman Manoj Warrier declined to comment on the valuation. P.M.S. Prasad, president of the oil and gas business, couldn't be reached by phone. LyondellBasell didn't disclose the amount offered by Reliance in a Nov 21 statement.

Revenue mix

If completed, the transaction would be the biggest by an Indian company since Tata Steel Ltd bought Corus Group Plc for $12 billion in 2007. Reliance's takeover of LyondellBasell would be the second-largest chemical acquisition this year, following the $18.8 billion purchase of Rohm & Hass Co by Dow Chemical Co, the largest US chemical company.

Reliance had about $32.4 billion of revenue in the fiscal year that ended in March, with 59 percent coming from refining and 36 percent from petrochemicals.

LyondellBasell had revenue of $50.7 billion in 2008, with about 34 percent coming from fuels, including gasoline, diesel, jet fuel and additives. About 30 percent was from chemicals, including ethylene, propylene, benzene and acetic acid, and 35 percent was from plastics, according to its annual report.

The company has an oil refinery in Houston and another in France.

LyondellBasell was formed in December 2007 when Basell AF paid $12.7 billion for Lyondell Chemical Co. It declared bankruptcy 13 months later.

Company's debt

The company has $7.06 billion in bonds and loans due to mature next year and a further $20 billion due through 2027, according to data compiled by Bloomberg. Standard & Poor's said on Feb 16 that it lowered its long-term corporate rating on the company to D from SD after it missed coupon payments on two notes a day earlier. LyondellBasell no longer has credit ratings from S&P, Moody's Investors Service or Fitch Ratings.

Reliance completed the world's largest oil-processing complex in December in Jamnagar in western India, where two adjacent refineries have a combined capacity to process 1.24 million barrels of oil a day. The company, which started producing natural gas from India's largest field in April, also makes polyester and chemicals and operates a retail store chain.

Indian acquisitions

"Reliance doesn't have any overseas production capacity," said Niraj Mansingka, a Mumbai-based analyst at Edelweiss Capital Ltd. "The only immediately apparent reason is that you buy when assets are at the bottom of a cycle. There's no clarity on how much costs can be cut by this, if Reliance intends to buy all or part of Lyondell, and whether it'll be the right mix."

Indian companies, which have lagged behind Chinese rivals in energy acquisitions, are stepping up purchases.

Shell said on Oct 30 it's in exclusive talks with Essar Oil Ltd over the sale of three refineries in the UK and Germany.

Oil & Natural Gas Corp, India's biggest energy explorer, completed a 1.4 billion-pound ($2.3 billion) acquisition of Imperial Energy Plc in March.

Reliance may buy oil fields in the Gulf of Mexico and Brazil, Prasad said in September. Reliance has 99,000 sq km of acreage in Oman, Yemen, Colombia, East Timor and Peru, Ambani told shareholders last week.

Source: China Daily