Mumbai: Shares in Reliance Industries were boosted on Wednesday as investor fears the Indian energy major would overpay for LyondellBasell were allayed after the petrochemicals firm was said to have rejected its offer.
Reliance, controlled by billionaire Mukesh Ambani, has made no secret of its overseas ambitions and has raised a war chest for potential deals by selling $2 billion in stock in recent months.
A person familiar with the development told Reuters on Tuesday bankrupt Lyondell had rejected Reliance’s offer that valued the Luxembourg-headquartered group at $14.5 billion.
This could mean Reliance, India’s largest-listed conglomerate whose interests include petrochemicals, refining, oil and gas and retail, could look at other overseas options for expansion.
It made a $2 billion offer to buy private Canadian oil-sands firm Value Creation Inc, according to media reports, although three people familiar with Reliance’s thinking have said the Calgary, Alberta-based firm may not be an ideal target.
Other possible targets include assets owned by US-based Valero Energy and Sunoco, energy assets belonging to ConocoPhillips and refineries in Europe that are up for sale, bankers have said.
“While LyondellBasell did offer strategic merit for Reliance, we believe the bid not going through is a better outcome, as it saves Reliance from getting drawn into a bidding war and thus potentially over-paying for the assets,” Goldman Sachs analyst Nilesh Banerjee said in a note.
At 1:28pm, shares in Reliance, which the market values at about $70 billion, were up 2.8% at Rs1,011 after climbing to as high as Rs1,015.
The Mumbai market was up 0.9%.
In November, investors cheered Reliance’s Lyondell bid, then valuing the target at about $12 billion, as the company was seen as snatching a potential bargain.
A deal would enhance Reliance’s presence in major markets such as the United States and Europe and catapult it into the ranks of top global chemicals makers such as Saudi Arabia’s SABIC, Germany’s BASF and Dow Chemical Co.
Reliance has since raised its offer twice, sources have said, with chances for success clouded by the prospect senior creditors such as Apollo Management may take a loss at the price Reliance has proposed and gain more from an independent Lyondell.
At the current offer price, Reliance is already valuing Lyondell at 10 times 2010 forecast EBITDA. Dow Chemical trades on a multiple of just over eight times.
Lyondell adviser Evercore has put a $13.5 billion to $15.5 billion enterprise value range on the company.
Goldman’s Banerjee said in his note that it would be better for Reliance to target assets in the exploration and production sector.