New York/Hong Kong: The board of bankrupt LyondellBasell Industries AF rejected a $14.5 billion (Rs66,700 crore) bid from Reliance Industries Ltd, an oil refiner and explorer controlled by India’s richest man, two people briefed on the matter said. The offer pitted billionaire Mukesh Ambani’s Reliance against creditors including Apollo Management Lp, a New York-based private-equity firm led by Leon Black, which had backed an earlier reorganization plan that would give them an equity stake in the chemicals maker. Lyondell spokesman David Harpole and Reliance’s Manoj Warrier declined to comment.
“It doesn’t mean this is the end. There’s an opportunity to counteroffer, but the upside value for shareholders is rapidly reduced,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C Bernstein Ltd. “LyondellBasell was an opportunistic move to buy a distressed asset at an attractive price. Bidding higher removes the rationale for doing this.”
The Rotterdam-based chemicals maker had earlier rejected a revised Reliance bid that valued it at $13.5 billion, The Wall Street Journal said on 8 January. India’s largest firm by market value had raised its offer for a controlling stake to $14.5 billion, two people with knowledge of the offer said 22 February. The Mumbai-based company initially offered an undisclosed amount on 21 November and has yet to make public the value of its bid.
Reliance shares rose 0.57% to close at Rs983.86.
The shares have dropped 9.7% this year, outpacing the 3.96% decline in the Bombay Stock Exchange’s benchmark Sensitive Index.
The cost of protecting Reliance’s bonds from default fell. Credit-default swaps on the company declined 7 basis points (bps) to 165 bps as of 4.48pm in Singapore, according to Royal Bank of Scotland Group Plc. The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements. A basis point is 0.01 percentage point. “The market seems to think this is a positive because the valuation for LyondellBasell seemed a bit too high for a company coming out of bankruptcy,”?said Vinay Nair, Mumbai-based analyst with Khandwala Securities Ltd, who has a “reduce” rating on the stock. “The cash outflow it meant for Reliance was a concern.”
Buying LyondellBasell would create a company with at least $80 billion in revenue and give Reliance chemical plants and two oil refineries in the US and Europe.
The Indian company is seeking assets abroad to reduce the risk of investing mostly in India, where it is battling a lawsuit over natural gas supplies with a company owned by Mukesh Ambani’s estranged brother, Anil Ambani.
Reliance may focus on the possible acquisition of Canada’s Value Creation Inc. should its bid for LyondellBasell fail, The Economic Times newspaper reported on Tuesday, without citing anyone. The company had bid $2 billion to acquire 65% of the Canada-based company with oil sands assets, CNBC-TV18 reported on 9 February without saying where it got the information.
Reliance had outstanding debt of Rs70,000 crore and cash and cash equivalents of Rs15,960 crore as of 31 December. “Reliance has raised about $2 billion selling shares since September,” chief financial officer Alok Agarwal said last month.
Lyondell was formed in a 2007 deal financed with $22 billion in debt in which it was bought by Basell AF, a unit of Len Blavatnik’s Access Industries Holdings Llc. Creditors have said the buyout crippled one of the world’s largest polymers, petrochemicals, and fuel companies, causing it to seek bankruptcy protection.
Houston-based Lyondell Chemical Co., a unit of LyondellBasell, filed a plan to reorganize in December while evaluating the offer from Reliance, pitting India’s biggest company against lenders. Lyondell has said it plans to reorganize by repaying its $8 billion bankruptcy loan in full and giving an equity stake in the new company to lenders, including sponsors of a $2.8 billion rights offering.
Access and Apollo Management have affiliates that were backers of the firm’s rights offering. Ares Corporate Opportunities Fund III was a third sponsor of the rights offering, according to court documents.
The rejection of Reliance’s bid by a creditor group led by Apollo Management would set the stage for merging LyondellBasell with the private equity firm’s Hexion Specialty Chemicals Inc. unit, the New York Post reported on Monday, citing three creditors.
John Duce in Hong Kong, Madelene Pearson in Mumbai, Katrina Nicholas in Singapore and Archana Chaudhary in New Delhi contributed to this story.