March 2, 2010 :  RELIANCE Industries (RIL) is on the verge of losing its bid for bankrupt petrochemical company Lyondell-Basell, as it baulks at rising valuation due to the recovering global economy, but that may help it focus on the possible acquisition of Canada’s Value Creation.

    The bid — by the nation’s largest private sector company which was raised 21% to about $14.5 billion from the initial $12 billion in November — may not be acceptable to creditors who are leaning towards the revival plan proposed by the current management, two people familiar with the matter said.

    “It is proving to be expensive,” said a person close to the deal preferring anonymity. “Lyondell’s reorganisation plan to be filed with the US bankruptcy court in Manhattan on Monday will influence the final decision,” the person added. The plan may be filed midnight India time. An RIL spokesperson declined comment.

    Lyondell’s creditors, led by buyout firm Apollo Management, is set to reject the plan by RIL in Monday’s proposal, the New York Post reported on its website. The plan to be filed is set to favour the merger of Lyondell with Hexion Specialty Chemicals controlled by Apollo, the report said.

    RIL has raised about $2 billion selling its own shares from the vault between November and now to possibly bid for Lyondell. It still has shares worth about $7 billion for which it has not publicly spelt out a strategy. RIL has time to raise its bid. But given its past record of seeking value in all its purchases, it may not raise the bid. The company had said in November that it was interested in buying a controlling stake in Lyondell, but it never officially disclosed how much it was valuing the target at.

    The treasury stocks were created eight years ago, following the merger of Reliance Petroleum, a subsidiary, with RIL. While holdings of promoter-companies get cancelled in these circumstances normally, RIL chose to retain them in a trust which are being sold now.

    “Reliance is a value buyer,” the New York Post report quoted Telly Zachariades, partner of the Valence Group investment bank, as saying. “He’s (Mukesh Ambani) is not the kind of person to get caught up in deal frenzy.”

    Apollo, which bought debt in Lyondell at a discount, “knows [Lyondell] is really valuable and RIL is making a mistake by not offering more”, the report quoted an unnamed creditor as saying. A second creditor said the offer from RIL values $8 billion of the most-senior Lyondell debt at about $2 billion less than where it’s trading, the report added. A successful deal would have created the world’s largest petrochemical company ahead of BASF and Dow Chemical with revenues of more than $80 billion.

 Value has tech to make oil from sand

RIL would have had access to better technology and refineries in Europe and the US.

    But the exit from the race to buy the petrochemical firm may help RIL focus its energies on another asset, though tiny compared to Lyondell. RIL is learnt to have expressed its desire to buy Canada’s Value Creation for $2 billion. The firm holds oil sands assets. But RIL has not commented officially on this yet.

    The Calgary-headquartered company’s subsidiary Technoeconomics is the owner of a technology that helps produce oil from sand and upgrade bitumen — a major feedstock for petroleum — at a relatively lower cost.