21 September 2009

RIL eyeing stake in Dutch petchem major: Sources

RIL eyeing stake in Dutch petchem major: Sources

Mukesh Ambani-owned petrochemical behemoth Reliance Industries (RIL) is eyeing to acquire part or whole of LyondellBasell, reports CNBC-TV18 quoting sources.

LyondellBasell http://en.wikipedia.org/wiki/LyondellBasell> is a Netherlands-based bankrupt petrochemical company, which is among the world’s producer of polymers, petrochemicals and fuels. It has an about USD 27 billion in assets with over USD 19 billion in debt at the time of filing for bankruptcy — the company also had an annual revenue of USD 50.7 billion in 2008. It filed for Chapter 11 bankruptcy protection in January this year and obtained a debtor-in-possesion financing of USD 1.8 billion in February — Merrill Lynch, Citigroup and RBS are among the key lenders to the company. LyondellBasell is expected to come out with a rights issue in October for additional liquidity.

Sources said the acquisition could entail RIL making a cash payment of USD 3.25 billion to its vendors.

Reacting to the report, LyondellBassel said it does not yet know who would be the sponsor for the rights offering. “The rights details would be determined and would be communicated in the next few weeks. The details would be made part of the planned supplement,” it said, adding that the rights details would be made known to the bankruptcy court.

RIL, which had on Thursday raised USD 650 million via a sale of treasury stock, declined to comment if the sale was connected to the LyondellBasell transaction.

The sale of treasury shares is accretive for RIL and is a transaction, which represents only 7.5% of our treasury stock and less than 1% of our equity capital. RIL is committed to growth and creating value for long-term shareholders,” it said. “The sale of treasury shares is a clear statement of intent from the management that it is going to make substantial investments to continue its' established track record of value creation. However, as a policy, we will not comment on any speculation on the deployment of these funds."

Read page 2 for CNBC-TV18's Gautam Broker's analysis..

According to sources, Reliance could be eyeing the bankrupt Petro-chemical giant LyondellBasell. This could be big for Reliance and even for India because there are few companies that can make this kind of a mark in the world.

LyondellBasell, before it went bankrupt in 2008, had annual sales of USD 50.7 billion. The company had USD 27 billion in assets and now an USD 19 billion in debt when it filed for bankruptcy.

LyondellBasell filed for Chapter 11 bankruptcy in January this year because of a short-term liquidity crisis. They did not have cash to manage that is why they went on to create a record of raising almost USD 9 billion in debtor in possession bankruptcy loan from bankers at a time when the liquidity crunch in the US was at a high. So they made a big record by raising such a big bankruptcy loan.

The debtor in possession bankruptcy loan of LyondellBasell stands at USD 8.1 billion and the lenders who lend to this company had lend about USD 3.25 billion in new money. That was in cash to the company so that it could run its businesses. The others were more on taking on the senior debt that the other lenders had with LyondellBasell.

Merrill Lynch, Citigroup and Royal Bank of Scotland are among the key lenders to LyondellBasell. So this is where the puzzle fits into the picture that Merrill Lynch and Citigroup were the ones that helped Reliance sell treasury shares and they are the same lenders to LyondellBasell so there could be a transaction between them.

LyondellBasell is now working to emerge out of the bankruptcy so it is looking to make a rights issue and disuse equity to the lenders and then exit out of its bankruptcy. In order to do that whoever is taking the new shares must make a cash payment to LyondellBasell and here is where Reliance could come into picture. It could make USD 3.35 billion new money that LyondellBasell is now promising its lenders to pay in cash. Reliance could make that offer and could take that rights issue offering shares on itself and that is how it could make the acquisition.

When we wrote to Reliance, Reliance did not deny this, that is why we have the confidence of presenting to you this story that Reliance is not directly saying that this acquisition or whatever inorganic growth that they are perusing would be value accretive to the company. In the end they added that they would not want to comment on how they are going to deploy the funds.

LyondellBasell on the other hand had to say that at this time we do not know who will be the rights offering sponsor so it could perhaps be referring to RIL and would not want to disclose it this point in time. RIL rights details will be determined and communicated within the next few weeks. Details of the rights offering will be a part of the plant supplement. Rights offering details will be communicated to the bankruptcy court and the rights offering will be providing additional liquidity to the company.

This is the company’s reorganization plan which will be provided to the US bankruptcy court and this hearing is schedule for October 14, so that is when the details will be made public. So if this story is right and if Reliance has to acquire or eye LyondellBasell the information should be in public domain before October 14.

Source: Moneycontrol.com < RIL eyeing stake in Dutch petchem major: Sources>

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