RELIANCE INDUSTRIES POTENTIALLY ACQUIRES LYONDELLBASELL AMIDST RECESSION LED PURCHASE PRICE

The potential purchase of a controlling stake in LyondellBasell Industries AF, the world’s third largest petrochemical company, by Reliance Industries Ltd, India’s largest company by market capitalization, marks a return to multi-billion dollar overseas acquisitions by cash-rich Indian companies tempted by depreciated asset prices of companies affected by the biggest worldwide recession since the Great Depression. If successful, it could make Reliance Industries India’s first company to have a market value greater than $100 billion.

Indian companies with a war chest of cash reserves include the Oil and Natural Gas Corporation Limited (ONGC), India’s state owned petroleum company, with reserves of about $5 billion; Reliance Industries with reserves of $4.2 billion and Tata Sons, the holding company for all Tata Group’s investments, with about $640 million .

Indian companies are on the hunt for bargain basement prices overseas. This is a good time for them to buy market share and customers in the West at fraction of what they would have paid a couple of years ago.

After a lull of about 18 months, Indian companies have aggressively started looking at foreign assets again. During that time, western economies dipped to low single-digit GDP growth and unemployment surged into double digits amidst the worst banking industry led financial crisis in decades. By contrast, the Indian economy continues to grow at nearly 7% annually amidst growing consumer demand and a robust banking system.

The fear that India’s economy might follow the West into a recession is over. That’s giving Indian companies the confidence to go hunting again in overseas markets where the recession gives them one-in-a-lifetime opportunities to acquire depressed assets.

LyondellBasell, based in Rotterdam in the Netherlands, sought bankruptcy protection early this year after demand for its plastic products plunged last year.

The acquisition of LyondellBasell by Reliance is expected to be India’s biggest cross-border deal this year, on par with the acquisition of the U.K.’s top steel maker Corus Group Plc for $12 billion by India’s Tata Steel Ltd in January 2007. Indian M&A activities peaked in 2007 with more than $51 billion worth of transactions.

India has been host to 234 M&A deals amounting to only about $8 billion during the first 10 months of this year, less than a third of that in the corresponding period in 2008.

The $100 Billion Club
The Reliance – LyondellBasell combine will accelerate Reliance into the elite league of companies worldwide that have a market capitalisation of more than $100 billion (Rs 460,000 crore). The combined entity will have potential consolidated revenue of more than $85 billion, transcontinental presence across more than 60 facilities and 60,000 people. Reliance Industries currently has a market value of about $75 billion.

The Indian companies are buying international scale and growth not only in developing economies, but to compete in developed economies as well. Reliance’s acquisition of LyondellBasell will mark India’s entry in the international petrochemical industry, just as previous years saw India Inc. buy into international steel, auto and IT industries.

Indian oil companies are stepping up overseas purchases as shrinking profit margins have prompted international refiners to idle and sell plants. Crude oil currently trades at about half its record $147.27 a barrel in July 2008.

Essar Oil, India’s second-largest private refinery is currently in talks to buy three refineries in the U.K. and Germany from Royal Dutch Shell Plc. 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.