INSIGHT: Reliance’s search for asset value

15 March 2010 16:18  [Source: ICIS news]

By Malini Hariharan

A Reliance Industries manufacturing complexMUMBAI (ICIS news)--It was valuation that drew Reliance Industries, the Indian oil to petrochemicals conglomerate, to make a non-binding offer for LyondellBasell last November. And it was Reliance’s perception of ‘fair value’ that brought the pursuit to a close.

A successful acquisition of LyondellBasell, whose US arm had filed for Chapter 11 bankruptcy protection in early 2009, would have catapulted Reliance to the top of the global petrochemicals ranking chart. 

But it was clear from the first day that the chase would not be an easy one.

Rival bids did not materialise but Reliance faced resistance from LyondellBasell’s management which had developed an independent plan to emerge from Chapter 11.

Reliance revised its initial offer of $12bn a couple of times, going as high as nearly $15bn but even that was viewed by the LyondellBasell management as not ”sufficiently valuable to abandon” its own reorganisation plan.

“LyondellBasell’s management was uninterested in any deal below $16bn while Reliance was not happy pushing up the value [any further] as they have other opportunities to pursue,” says an analyst.

“Reliance has a chance only if creditors reject the plan but I don’t see that happening,” he adds.

Last week, LyondellBasell obtained the bankruptcy court’s approval for a disclosure statement, a document used by creditors to decide whether they will support or oppose the reorganisation plan. While it has until 15 April to secure support, the company has said that some creditors have already agreed to the plan.

It is “broadly the end of the story” according to a source close to Reliance.

“Beyond a price there is no point chasing [LyondellBasell]”, he says.

“Reliance thought it would get the company cheap. But Access Industries and Apollo Management clearly saw which direction the [petrochemical] market was moving. They saw a turnaround and recovery in margins; it was better to keep the company.”

Access, LyondellBasell’s parent company, and Apollo, the US-based private equity firm, are playing a key role in the company’s reorganisation.

 The source adds that Reliance will continue to look at other opportunities but firmly believes that any acquisition will be done only at “fair value”.

However, defining fair value is not easy as it depends on how strategic an asset is for a company.

“In the refining business there is no compulsion [to buy]; even if there are no additions it would be OK for Reliance. But it might be crucial for another company which may be willing to pay higher,” he adds.

Reliance runs two world scale complex refineries at Jamnagar on the west coast of India with a total capacity of 1.24m bbls/day.

The analyst points out that Reliance sees itself as a “‘value buyer” and would like to remain one. 

LyondellBasell is not the first opportunity that Reliance has had to abandon. It had also looked at Innovene which was eventually acquired by INEOS.

Reliance is unlikely to face a shortage of opportunities. Bankers know the company is interested and they are likely to be queuing up, points out the analyst.

However, Reliance has set a high value bar and that could make it difficult for the company to execute a major acquisition to realise its vision of becoming a global player.

Read John Richardson and Malini Hariharan’s Asian Chemical Connections blog
Bookmark Paul Hodges’ Chemicals & the Economy blog
For more on Reliance Industries visit ICIS company intelligence
To discuss issues facing the chemical industry go to ICIS connect


By: Malini Hariharan
+65 6780 4359



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