Author: CP

RIL has made initial cash offer for LYO’s assets, to be considered as an alternative plan under Chapter 11 proceedings which the latter is undergoing. The final offer would be made after due diligence, which then will be decided upon by the creditors vs. the initial reorg plan and other equity financing proposals.

LYO has global leadership position in polyolefins and propylene oxide and is a leading licensor of polyolefin technology and catalysts. The company also has refining capacity of 420 kbpd (~21 MMTPA), with Houston refinery having high complexity (~12)
and generated EBITDA/bbl of US$15/bbl in 1H08

While petchem assets provide size and may be some cost-cutting benefits in the long-term, the US refinery may not provide significant inroads into US apart from operational synergies (crude sourcing, etc.)

Kotak Analyst in a Research Note said,

The impact on RIL’s stock would depend on the valuation of the transaction. We do not see any real synergies between RIL’s current India-centric operations and LB’s operations in Europe and US. Also, the process may be fairly long-drawn and complicated given regulatory and legal issues.

However, RIL is headed by Mukesh Ambani and he definitely has the vision to create Wealth in Long Term.

The Hansen stake sale at GBp95/ share fetches suboptimal value even though it may have helped bypass the stalemate on strategic sale process. We highlight a sharp decline in Hansen’s share price since the announcement of a secondary placement by Suzlon.

The transaction implies that Suzlon did not see the strategic sale of Hansen materializing in the near future and strategic buyers were not interested at the expected price. A sharp decline in Hansen to GBp100 from GBp140 appears to reflect the market’s wariness at the lack of interest from strategic buyers at the expected price, hence the much lower valuation.

The value of the placing is about GBP224 mn (about Rs17 bn). This is about 14% of the current net debt of Suzlon’s wind business. We believe the Hansen sale would not provide any valuation upside as we were attributing a higher valuation to Hansen but this may help partially restore the balance sheet and customer confidence. Suzlon would eventually sell the remaining 26% stake as well.