Mumbai: Reliance Industries Ltd(RIL) plans to acquire LyondellBasell Industries AF (LBI) is being hampered by the management of the bankrupt company, which has made clear its preference for the original restructuring plan, squelching the Indian company’s ambition.
The LBI management is asking the US bankruptcy court in New York to extend its deadline to September for the reorganization plan that involves giving control of the petrochemicals company to its former owner, two investors and secured lenders.
Confirming that LBI had submitted an amended plan to the court mirroring “similar proposals as those we have been working on for several months”, company spokesman David A. Harpole said: “Our focus right now is on developing a plan that we believe is the best plan forward and that is the plan we (have) submitted on Friday.”
When asked whether this implied opposition to the bid by RIL, Harpole said he couldn’t answer this “opinion question”.
In the red: A file photo of Lyondell’s Bayport Choate plant in Texas. F Carter Smith/Bloomberg
The “majority of our creditors are on our side and in agreement with our plan”, he said. “It does not preclude RIL from making a final bid if it so wishes. If there is a superior bid, there is an option to take it on,” he added, clarifying that the door was not closed to India’s most valuable company.
The plan involves LBI repaying its $8 billion (Rs37,280 crore) bankruptcy loan in full and giving an equity stake in the new firm to lenders, including sponsors of the $2.8 billion rights offering, despite a non-binding preliminary bid from RIL in mid-November that continues to be under consideration.
A smaller clutch of unsecured lenders, known as the creditors’ committee, is backing the RIL bid. The committee plans to oppose the management filing and wants the court to allow it to submit alternative proposals, such as a cash infusion by RIL.
The move effectively pits RIL’s plan against the Rotterdam, Netherlands-based company management’s efforts to retain control.
“This looks like a fight over who will ultimately control the company,” Lorraine McGowen, a lawyer at Orrick, Herrington and Sutcliffe Llp, which is not involved in the deal, was cited as saying by Bloomberg.
The Indian oil-to-yarn conglomerate will persist with its intent.
A questionnaire emailed to RIL’s spokesman went unanswered, but according to a senior company executive, who did not want to be named as he isn’t authorized to speak to the media: “There are several financial issues and we are going into it with a fine toothcomb. We always knew it will be a mess, but we have not lost interest. It is still on our radar.”
If the court ratifies LBI’s amended plan, RIL’s acquisition hopes will be dashed, but if the exclusivity is lifted, implying other creditors too can bring reorganization proposals, the Indian company’s offer could become part of the creditors’ committee filings.
“These kind of negotiating tactics play out in big-ticket acquisitions. It could be just a way to ensure RIL pays more for the acquisition,” said a Mumbai-based analyst with a global brokerage, adding that a bill of anything over $12 billion will make the purchase unviable for RIL.
The Indian firm has never formally stated its bid price, but industry estimates have ranged it between $10 billion and $12 billion, in a deal that could create the world’s largest petrochemicals firm.
LBI, the world’s third largest chemicals company, posted $50.7 billion in annual sales, while RIL brought in nearly $30 billion last year.
Last week, LBI had said it was settling the lawsuit with creditors and offered $300 million to the unsecured ones once it emerged from bankruptcy. The offer has been incorporated in the new court filing, but was rejected by this class of creditors.
The unsecured lenders had sued the lenders and advisers who stitched together the $12.7 billion buyout in 2007 of Houston-based Lyondell Chemical Co. by Basell AF. The debt that the deal entailed crippled the firm and ultimately pushed it into bankruptcy.
RIL’s shares fell 1.41% apiece to close at Rs1,051.35 on Tuesday on the Bombay Stock Exchange as the bellwether equity index, the Sensex, fell nearly 1.3% to close at 16,877.16 points.
Bloomberg contributed to this story.