RIL may have to up Lyondell bid to $15 billion: analysts
18 Feb 2010
In a development that could set back Reliance Industries (RIL)'s bid for LyondellBasell, Lyondell's creditors have sorted out their differences, paving the way for the bankrupt chemical firm to emerge from bankruptcy.
Reliance may now have to up its offer, as Lyondell's valuation would get a boost allowing it to go ahead with its reorganisation plan. According to analysts, the improving global economic scenario would also add considerably to Lyondell's valuations.
Analysts, however, do not agree on whether Lyondell was panning to be an expensive proposition for RIL, with some of them of the view that there was a possibility of the deal stalling altogether.
Though RIL remains tight lipped about its future strategy, according to sources at RIL, the company was still working on its offer factoring in the latest development.
Though details of RIL's offer are not known, according to industry estimates, its valuation of Lyondell would be in the region of $13.5 billion - about 7 per cent lower than the Dutch company's earlier reorganisation plan, which valued it at $14.5 billion.
With Lyondell and its unsecured creditors settling over distribution of $450 million as against the earlier $300 million, RIL would now have to submit a fresh plan to the US bankruptcy court incorporating the terms. The unsecured creditors are known to be supportive of the company's recorganisation plan.
Once Lyondell were to emerge out of Chapter 11 in the US, analysts say, RIL would prefer to acquire a controlling stake in the company. This it would do by buying out a part of the shareholders' stake and subsequently subscribing to fresh shares.
RIL has readied a war chest of over Rs9,000 crore through the sale of its treasury stocks and is now in a position to raise another Rs13,000 crore by selling the balance of its treasury shares.
Meanwhile, agencies have quoted David Harpole, LyondellBasel's spokesperson, as saying that any alternative to the firm's reorganisation plan would need to be much better and attractive and one that would maximise the value for creditors. According to analysts, RIL would have to offer in excess of $15 billion to make its bid attractive for Lyondell.