Reliance Bids for Bankrupt LyondellBasell to Expand Overseas

Nov. 23 (Bloomberg) -- Reliance Industries Ltd., India’s biggest company by market value, bid for bankrupt chemicals and fuels maker LyondellBasell Industries AF, as it seeks to take advantage of the global financial crisis to expand overseas.

The refiner and energy explorer controlled by billionaire Mukesh Ambani on Nov. 21 offered an undisclosed amount of cash to buy a controlling stake in LyondellBasell. The Mumbai-based company may have to pay at least $12 billion, the Times of India reported yesterday, citing an unidentified banker.

“It’s not really the best time to be taking on refining assets,” said Tony Regan, a consultant at Tri-Zen International Ltd. in Singapore. “It’s an opportunistic purchase if the company is bankrupt, but there’s a reason why those assets are cheap.”

Reliance joins India’s Essar Group in bidding for plants overseas as declining fuel demand and processing margins prompt global rivals Royal Dutch Shell Plc and Exxon Mobil Corp. to sell assets including refineries. Ambani, armed with $4.2 billion in cash, told shareholders last week that “global growth by acquisitions” is the key to boosting revenue.

If the Lyondell transaction were completed, it would be the biggest by an Indian company since Tata Steel Ltd. bought Corus Group Plc for $12 billion in 2007.

Reliance spokesman Manoj Warrier declined to comment on the valuation. P.M.S. Prasad, president of the oil and gas business, could not be reached. LyondellBasell didn’t disclose the amount offered by Reliance in a Nov. 21 statement.

Revenue Mix

Reliance’s stock has gained 72 percent this year, giving the company a market value of about $75 billion. That compares with the benchmark Sensitive Index’s 76 percent surge. Reliance has said it is looking for assets abroad to reduce the risk of investing mostly in India, where the company has been battling a lawsuit over natural gas supplies with a firm owned by Mukesh’s estranged brother, Anil Ambani.

About 97 percent of Reliance’s assets are in India.

Reliance had about $32.4 billion of revenue in the fiscal year that ended in March, with 59 percent coming from refining and 36 percent from petrochemicals.

LyondellBasell had revenue of $50.7 billion in 2008, with about 34 percent coming from fuels, including gasoline, diesel, jet fuel and additives. About 30 percent was from chemicals, including ethylene, propylene, benzene and acetic acid, and 35 percent was from plastics, according to its annual report.

LyondellBasell was formed in December 2007 when Basell AF paid $12.7 billion for Lyondell Chemical Co. The company declared bankruptcy 13 months later.

Jamnagar

The company, which has an oil refinery in Houston, is a unit of New York-based Access Industries Holdings LLC, founded by billionaire Len Blavatnik. The company operates a second refinery in France.

Reliance completed the world’s largest oil-processing complex in December in Jamnagar in western India, where two adjacent refineries have a combined capacity to process 1.24 million barrels of oil a day. The company, which started producing natural gas from India’s largest field in April, also makes polyester and chemicals and operates a retail store chain.

“Reliance doesn’t have any overseas production capacity,” said Niraj Mansingka, a Mumbai-based analyst at Edelweiss Capital Ltd. “The only immediately apparent reason is that you buy when assets are at the bottom of a cycle. There’s no clarity on how much costs can be cut by this, if Reliance intends to buy all or part of Lyondell, and whether it’ll be the right mix.”

Indian companies, which have lagged behind Chinese rivals in buying overseas energy assets, are stepping up acquisitions.

Shell said Oct. 30 it’s in exclusive talks with Essar Oil Ltd. over the sale of three refineries in the U.K. and Germany.

Indian Acquisitions

Oil & Natural Gas Corp., India’s biggest energy explorer, completed a 1.4 billion-pound ($2.3 billion) acquisition of Imperial Energy Plc in March.

Chinese companies have spent at least $13 billion on oil assets overseas since December after crude fell from a record $147.27 a barrel in July 2008.

Reliance may buy oil fields in the Gulf of Mexico and Brazil as it seeks to spread its geographical and geological risks, Prasad said in September.

Reliance has 99,000 square kilometers of acreage in Oman, Yemen, Colombia, East Timor and Peru, Mukesh Ambani told shareholders. Average production in the Yemen Block 9 was 4,200 barrels of oil a day, he said.

The Reliance bid may herald more acquisitions in the chemical industry as the global economy recovers, Laurence Alexander, a New York-based analyst at Jefferies & Co., said in a telephone interview.

More Deals?

Selling companies are growing more confident that they will receive appropriate value as earnings improve, he said. Some companies may not have the cash or borrowing capacity to expand output fast enough and decide the best path is to merger with competitors, he said.

“You are going to continue to see the Middle East players expand downstream into thermoplastics, adhesives or coatings,” Alexander said, citing Sabic’s acquisition of General Electric’s plastics unit and Abu Dhabi’s purchase of Nova Chemicals.

Saudi Basic Industries Corp. bought General Electric Co.’s plastics unit in 2007 for $11.6 billion, the biggest purchase by a Gulf region company, to add a network of factories and customers in Europe and the U.S.