CLSA maintains outperform on Reliance Industries
CLSA has maintained its Outperform rating on Reliance Industries after the company announced its plans to make a non-binding cash offer for all the assets of LyondellBasell (LB), the world’s largest polymer producer.
“LB filed for bankruptcy in early 2009 under its US $ 24bn debt load after market conditions deteriorated in late-2008, which saw it almost run out of cash. LB filed a plan for reorganisation in September 2009 to emerge out of bankruptcy in early 2010; this broadly seeks to transfer LB to its creditors in lieu of extinguishing about US$18bn of its pre-bankruptcy debt. While the specifics of Reliance’s offer are unknown, it offers an alternative for LB to pay off its creditors in cash and gives Reliance a controlling stake. This initial offer opens up data-rooms for detailed due diligence after which we expect Reliance to make a firm offer; this will need to be approved by the bankruptcy court and two-thirds of creditors - the process should take six months.
KIM ENG maintains ‘Buy’ on Reliance Industries
KIM ENG India has maintained ‘Buy’ call on Reliance Industries even as the company has announced plans to acquire LyondellBasell.
“Reportedly, Reliance Industries may pay between US$6bn to US$12bn for Lyondel. We do not expect a deal in the near term, given lots of red tape involved and a due diligence of assets, which has not yet begun. Others bidders include Sinopec of China and several large private equity companies. Our BUY rating for the stock is supported by FY10F EPS growth of 20% following from increasing gas sales,” the update note said.
Source: CLSA and KIM ENG Research Reports
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RIL today is the world’s seventh largest producer of polypropelene while LB is its largest producer. Thus, if the deal goes through, RIL would have a global monopoly in polypropelene. LB`s product portfolio also complements that of RIL’s — the former is a large producer of oxy fuels and polyethelene while the latter leads in producing paraxylene, purified terephthalic acid (PTA) and monoethylenglycol (MEG). The Mukesh Ambani company would thus have strength across a diversified portfolio.
The deal would also help RIL consolidate its petro-chemical business. LB has many pet-chem facilities in the Middle East — going on-stream from December — that use ethane as feedstock secured at long-term supply contracts of USD 1.2-1.4 per mmbtu. RIL, on the other hand, uses naptha as feedstock, which is much costlier
RIL had been eyeing Basell (before LB came into existence) since quite some time before it was taken over by Access Industries. Valuation-wise, LB is much bigger and comes much cheaper than in the past and with idle cash and low leverage and debt, RIL is in a good position to move in for the kill.
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