MUMBAI Energy major Reliance Industries (RELI.BO) may be forced to raise its offer for LyondellBasell or abandon its bid all together after the target settled a dispute with creditors that paved the way for an exit from bankruptcy.
Reliance Industries, India's largest-listed firm controlled by billionaire Mukesh Ambani, is keen on LyondellBasell ACCEIN.UL and has offered a deal that would value it about $13.5 billion, a source familiar with the matter said last month.
Senior creditors including private equity firm Apollo Management, who are controlling Lyondell's bankruptcy process in the United States, may take a loss at the price Reliance has proposed and gain more from an independent Lyondell, which has clouded the Indian firm's prospects for success.
Lyondell said on Tuesday it would continue with its reorganization plan aimed at exiting bankruptcy.
"It seems like Reliance is effectively out of the race for now," Deepak Pareek, an oil and gas analyst at Angel Broking said. "We feel $12 billion to $13 billion is a fair price for Lyondell, not more," he said.
Reliance Industries declined comment, while Lyondell, which is headquartered in Luxembourg, said any alternative to its latest plan would need to be substantially more attractive.
"Any alternative plan would require a third party to submit a definitively higher and better offer that maximizes the value for our creditors," Lyondell spokesman David Harpole said.
Reliance, which has raised $2 billion by selling stock to fund its expansion plans, has been hedging its bets as it looks to expand overseas.
"Reliance may or may not raise its bid, but will definitely look abroad. Money is coming in from the company's gas fields, and now it is time to expand further," said Ajay Parmar, head of institutional equities at Emkay Global Financial Services.
"Look at what China has done. Companies there have expanded buying assets overseas," he said.
Media reports have said Reliance made a $2 billion offer to buy private Canadian oil-sands firm Value Creation Inc, but three people familiar with Reliance's thinking say that company may not be an ideal target.
Bankers say other possible targets include assets owned by U.S.-based Valero Energy (VLO.N) and Sunoco (SUN.N), energy assets belonging to ConocoPhillips (COP.N) and refineries in Europe that are up for sale.
Reliance is being advised by boutique investment banking firm Perella Weinberg Partners on the Lyondell bid, two sources familiar with the matter said.
Perella could not be immediately reached for comment.
"There are several other opportunities for Reliance that may even provide better synergies than Lyondell," Angel's Pareek said.
"It should look at something in the exploration and production space, as it has one of the largest refineries in place already," he said.
In late 2008, Reliance commissioned a 580,000 barrels per day (bpd) refinery next to its existing 660,00 bpd plant at Jamnagar in the western Indian state of Gujarat. Together, the plants make up the world's largest oil refining complex.
Ambani, India's richest man, has said his company plans an aggressive exploration campaign, investments in petrochemicals and overseas acquisitions.
If Reliance bought Lyondell, it would be catapulted into the ranks of top global petrochemical makers such as Saudi Arabia's SABIC 2010.SE, Germany's BASF BASF.DE and Dow Chemical Co (DOW.N).
Reliance, founded by Ambani's father Dhirubhai, a school teacher's son, has grown rapidly as it diversified from making textiles to polyester to refining to oil and gas exploration.
A high-profile legal battle over a deal to sell gas to Reliance Natural Resources RENR.BO, led by Mukesh's estranged younger brother Anil, at below the price set by the government, has unnerved investors in the firm.
Reliance recently posted its first quarterly profit increase in five quarters, signaling a ramp up in output from its gas fields is paying off, and will be a major profit driver in coming quarters.
Shares in the company, valued at $72 billion, are down 3 percent since the Lyondell bid, in line with the broader index .BSESN. By 0915 GMT, the firm's shares were up 1.2 percent.
"Investors always want short-term gains, and that is a problem. But any acquisition is a long-term investment rather than a short-term one," Emkay's Parmar said.
(Additional reporting by Indulal P.M in NEW DELHI; Editing by Tony Munroe and Jean Yoon)