UpdateIndia's Reliance offers to acquire control of LyondellBasell

23 November 2009 07:25  [Source: ICIS news]

By Pearl Bantillo

SINGAPORE (ICIS news)--Indian petrochemical giant Reliance Industries will be the biggest polypropylene player in the world if it is successful in acquiring financially-troubled LyondellBasell, analysts and industry players said on Monday.

The proposed acquisition would be the biggest to be done by an Indian company this year, with the bid estimated at between $9-12bn (€6-8bn), said a source with knowledge of the deal.

LyondellBasell, currently the biggest polypropylene producer in the world, has announced over the weekend that Reliance has made a non-binding cash offer to the company.

LyondellBasell’s stated enterprise valuation in 2008 was about $9bn, down from over $30bn before the company filed for Chapter 11 protection, said a source familiar with the transaction.

Reliance Industries has the financial strength to take on major acquisitions at this time, said a Mumbai-based analyst, who declined to be named.

“There is a desire to take that one step further … to take them (Reliance) into the global league. But obviously, it will take them time to turn around this company,” said the analyst, who declined to be named.

“It is going to be a challenge if this were to happen,” he added.

Reliance would conduct due diligence on the Netherlands-based company - whose US operations is currently under bankruptcy protection – said the source familiar with the deal.

"It is difficult to give a time line. The due diligence will depend on regulations. Reliance will also have to talk to creditors," said the source.

Completion of the due diligence may be in time when the US court would determine whether or not to allow debt-ridden LyondellBasell’s US operations to exit from bankruptcy protection, he added.

Reliance Industries, while big on exports, has all its manufacturing facilities concentrated in India. LyondellBasell would then provide the company with strong presence in its untapped markets, industry sources said.

“It will help Reliance tap into markets such as the US and Australia, where it has hardly any export position currently,” said a polymer trader in India.

The proposed acquisition should spell good news for polyolefin suppliers as there would be less competition in the market, said a source close to a Middle East producer.

Customers, on the other hand, would be at a slight disadvantage as they would have less clout, he said.

While it is still early to determine whether the proposed transaction could push through, a complete integration of LyondellBasell’s operations into Reliance appears to be more beneficial, industry sources said.

“A total integration would be good. It would bring more discipline into the market – the bigger a company is, the more corporate responsibility it would have to display,” said an Asian polymer trader who sells to India.

Reliance, however, may decide to go the way of UAE’s International Petroleum Investment Co (IPIC) with Nova Chemicals and keep LyondellBasell operating as a separate entity if the deal pushes through.

“Everything depends on what happens after the acquisition – whether Reliance integrates LyondellBasell into its fold, as it did IPCL, or whether it looks at it merely as an investment, as IPIC did with Nova Chemicals, and allows LyondellBasell to operate as a separate entity,” said an Asian polymer trader who sells into India.

Shares in Reliance rose more than 1% early on Monday over the news about its cash offer.

($1 = €0.67)

With additional reporting by Prema Viswanathan, Chow Bee Lin and Malini Hariharan
To discuss issues facing the chemical industry go to ICIS connect
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections


By: Pearl Bantillo
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