India's Reliance looks to become world's largest chemical firm

Updated November 26, 2009 20:48:25

India's biggest private company, Reliance Industries, is hoping to achieve its global ambitions by buying a bankrupt European chemical and fuel business. Reliance is a major oil and gas explorer and producer of petrochemicals and textiles. Its takeover target is Lyondell-Basell, a Netherlands based petrochemical and biofuel company. And the price tag for Reliance to become the world's largest chemical company could run as high as $US12 billion.

Presenter: Karon Snowdon
Speakers: Victor Shum, managing consultant, Purvin and Gertz; Madhu Nainan, editor in chief, Petrowatch

SNOWDON: If successful the Reliance bid for a controlling stake in Lyondell-Basell will create the largest chemical company in the world in terms of revenue. The Reliance groups' annual revenues now total more than $US28 billion. It's a Fortune 500 company, a major exporters of chemicals, and the world's largest producer of polyester yarn. Lyondell-Basell, the world's third-largest chemical maker collapsed under $US24 billion worth of debt in January, and filed for Chapter 11 bankruptcy in the United States.

Victor Shum, a managing consultant with Purvin and Gertz in Singapore says the global industry is in a trough, a good time to buy a company.

SHUM: Well it is the best time to buy a good asset or an established business in refining and petrochemicals and Lyondell-Basell happens to be really in a stressed situation because of the incurred debts. It's a good business for them and it happens that we are really in a very poor economic environment.

SNOWDON: Buying a struggling company with good assets in order to reap the benefits when the economy improves depends on the price. So far Reliance has submitted a non-binding preliminary offer but no details. The market speculation is for an offer price of around $US12 billion. That might be too high, says Madhu Nainan, editor in chief of the oil and gas newsletter, Petrowatch in New Delhi.

NAINAN: It seems expensive, I've been speaking to some locals here, I mean financial brokers, they think that $12 billion is an expensive buy, not worth that much if you look at the debts that the company has. If you take that into account I'm not sure why they would pay as much as $12 billion for this company.

SNOWDON: Owned by India's richest man, Mukesh Ambani, Reliance is keen to expand overseas. Madhu Nainan says the company will succeed in one leap to become a globally significant corporation.

NAINAN: Reliance has been trying for a long time to spread its footprint outside of India in a significant way. They've not been able to do it for various reasons. The basic thing that Reliance is looking to expand its footprint outside of India, so whatever is available at a good price they will snap it up.

SNOWDON: The operations of Lyondell-Basell includes some of the world's most advanced technology. Victor Shum:

SHUM: The countries of interest would be the US and the European markets where Lyondell has manufacturing facilities and also the marketing distribution network. And Reliance would also gain some sophisticated manufacturing assets in particular, the Lyondell refinery in Houston Texas is a highly sophisticated refinery.

SNOWDON: With due diligence and the need to get creditor's approval, the sale if it proceeds might take at least six months.