Reliance Industries Ltd has made a preliminary offer to acquire a controlling stake in LyondellBasell. The exact value of the deal or the stake that RIL proposes to buy in LyondellBasell is yet not known, however, it is likely to be an all-cash deal. RIL has recently mobilised around Rs 3,200 crore by selling treasury shares. Cash reserves were estimated at around Rs 19,421 crore at the end of September 2009. RIL’s net debt is approximately Rs 51,000 crore resulting in a net debt-to-equity ratio of 0.42. If RIL decides to raise this ratio to 1, it can borrow almost Rs 70,000 crore more (US$14.9 bln).
This (non-binding) offer is in addition to the previous non-binding equity financing proposals received by LyondellBasell and represents a potential alternative to the initial plan of reorganisation previously filed by the US$50.7 bln polymers, petrochemicals and fuels company which is trying to emerge out of bankruptcy proceedings. The offer is preliminary and subject to customary conditions including conduct of due diligence, documentation and receipt of sufficient creditor support. If the deal goes through, the combined entity will have annual revenues in excess of US$75 bln. It will expand RIL’s presence significantly in the global petrochemicals market and give it an entry into the technologically superior specialty chemicals.
LyondellBasell is privately owned by ProChemie GmbH, a joint venture of Access Industries and ProChemie Holding. In 2008, it reported losses of US$7.3 bln on revenues of US$50.7 bln. At the end of September, its liabilities were estimated at US$22.24 bln, asset base was US$21.63 bln. In January, LyondellBasell had voluntarily filed to reorganise its US operations and one of its European holding companies under Chapter 11 of the US Bankruptcy Code to restructure the company’s debts. In April, LyondellBasell’s parent company and its general partner were voluntarily added to the Chapter 11 reorganisation filing to protect them against claims by certain creditors.