Reliance bids to be global player with LyondellBasell offer
Posted: 26 November 2009 1029 hrs

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NEW DELHI: It is far from a done deal but according to analysts, Reliance Industries' bid for bankrupt Netherlands-based LyondellBasell could transform the Indian company into a global energy and chemicals powerhouse.

Reliance Industries Ltd, India's largest private sector company by market value, announced at the weekend a cash bid reported to be worth up to US$12 billion to buy fuels and chemicals maker LyondellBasell Industries.

"The deal would provide Reliance with a chance to vault into the top ranks of global corporations in one swoop," said Deepak Pareek, energy analyst at Mumbai's Angel Broking.

Reliance's ambitious step to break out of its Indian boundaries also is a marker that cash-rich Indian companies are returning to the global acquisition trail after weathering the international financial crisis, analysts said.

Reliance, which operates the world's largest refinery, would "get the global footprint and distribution network" from the purchase of LyondellBasell, which would be one of the biggest acquisitions by an Indian company, Pareek said.

The purchase of LyondellBasell would also give Reliance a US refinery at a time "when it is impossible to build a grass-roots refinery in the United States - nobody wants them in their back yard," Victor Shum, Singapore-based analyst at US energy consultancy Purvin and Gertz, told AFP.

Up to now, Reliance, led by India's richest man Mukesh Ambani, has focused on building itself into an Indian corporate behemoth by investing in its refining and other operations rather than through acquisitions.

While Reliance said it had made an offer for a controlling stake in LyondellBasell, it declined to comment on reports it could pay up to US$12 billion for the Rotterdam-headquartered company, which collapsed in January under a 24-billion-dollar debt as its markets deteriorated.

The Reliance bid comes as Mukesh Ambani is enmeshed in a bitter feud being fought out in India's Supreme Court with his younger brother Anil Ambani. The row is over the price Anil should pay to Mukesh for gas to run his power plants.

Mukesh Ambani said earlier this month that Reliance, which is sitting on a four-billion-dollar cash pile, wanted to expand abroad to grow revenues. Some 97 per cent of Reliance's assets are in India.

The bid marks a quantum leap for Reliance which had revenues of US$29 billion in 2008 compared to US$51 billion in sales posted by LyondellBasell, the world's third-largest chemicals maker.

LyondellBasell has remained non-committal, saying Reliance's bid is a "potential alternative" among others to its reorganisation plan filed in a New York court in September to emerge from US bankruptcy protection.

The offer now paves the way for Reliance to conduct "due diligence" - examination of LyondellBasell's finances after which the Indian company could make a firm offer.

The offer would need to be approved by the bankruptcy court and two-thirds of creditors - a process which analysts said could take at least six months.

LyondellBasell "is a compelling one-off opportunity for Reliance," investment house CLSA said in a report.

But to realise gains, Reliance would have to improve LyondellBasell's operating performance - its Houston refinery, for instance, has been losing money, CLSA noted.

Buying refinery operations right now requires a steady nerve, analysts also said, with refining margins having fallen due to the global slump. LyondellBasell has one refinery in Houston and another in Berre l'Etang, France.

Reliance's bid comes as other Indian companies have been scouting for overseas acquisitions with the domestic economy recovering and the stock market soaring.

"Indian companies are on the hunt for bargain basement prices overseas," said Bundeep Singh Rangar, chairman of IndusView, an India-focused cross-border advisory firm.

"This is a good time for them to buy market share and customers in the West at a fraction of what they would have paid a couple of years ago," Rangar said.

The last big-ticket Indian acquisition was in 2008 when the country's top vehicle maker Tata Motors paid US$2.3 billion for ailing British car icons Jaguar and Land Rover.

The purchase came one year after Tata bought Anglo-Dutch steelmaker Corus in 2006 for US$13.7 billion.

- AFP/sc