Reliance looking to acquire BP's olefin and derivatives business

29-Aug-05

India's largest private sector company is looking to acquire global oil firm BP's olefin and derivatives business for Rs 25,000 crore to Rs 30,000 crore. RIL is undertaking a due diligence exercise on BP's olefin's business, and is still in the preliminary stage of the bidding process. The company would have signed confidentiality clauses in the agreement before starting the exercise. If successful, it will dwarf Oil and Natural Gas Corporation's US$780-million (about Rs 3,500 crore) deal to buy a stake in Sudan oil fields, and will be the biggest-ever acquisition by an Indian firm. This bid could propel RIL into the top 5 petrochemical companies globally. BP is keen to sell the petrochemicals business, which suffered a loss of Rs 3,900 crore last year. BP has been weighing the possibility of spinning off the business to facilitate its sale, or has been considering a proposal to list its petrochemicals unit as a separate entity on the bourses and raise money for expansion of other businesses. If Reliance fails, another Canadian company, Nova Chemicals, could be the next in line. BP Plc is the world's second-largest oil group by shareholder wealth, and is the fourth largest petrochemicals firm in the world. Recently, it rebranded its olefins and derivatives plastics business, ahead of a planned sell off and called it Innovene. Innovene functions primarily as a feedstock supplier for petrochemicals and plastics. Formerly known as BP Chemicals, it recorded sales of over US$15 bln in 2004. Reliance plans to build the world's largest grassroots petroleum refinery when it scales up the 31 million tons Jamnagar plant to 60 million tons in 2-3 years. Analysts are of the opinion that the annual cash flows of Rs 12,500 crore from existing businesses would be enough for RIL to launch a bid for the BP unit. One possibility is encashing RIL's treasury stock, which is held by the Petroleum Trust and a few other group subsidiaries, which accounts for 12.2% of the RIL equity (17 crore shares), at an estimated value of over Rs 12,500 crore. Reliance has to decide to divest its stake, which expires 5 years after the merger of RPL with RIL. There is only a year to go before the deadline ends, after which the stock has to be extinguished.