Reliance Industries raised $577 million through a share sale, the second big equity fund raising in under four months for India’s largest listed company as it looks to buy bankrupt petrochemicals firm LyondellBasell.
Reliance, controlled by India’s richest man, Mukesh Ambani, sold 25 million existing treasury shares at a 5 percent discount to Thursday’s market close to state-run Life Insurance Corp of India, two sources with knowledge of the transaction said.
The deal follows a $660 million share sale by conglomerate Reliance in September.
Both deals are seen as part of energy major Reliance’s bid to take control of Luxembourg-based LyondellBasell, a deal sources say could be worth as much as $12 billion.
“Reliance’s major agenda is to become a leading player in the international domain,” said Alex Mathews, head of research at Geojit BNP-Paribas Financial Services.
“The funds could be used to make a war chest for global acquisitions,” Mathews said.
Citing bankers, Reuters Basis Point reported in December that Reliance is in preliminary talks with banks for a loan of up to $10 billion to back its bid for LyondellBasell.
Reliance has interests in petrochemicals, refining, oil and gas exploration and retail, and a deal with Lyondell would catapult it into the ranks of top petrochemical makers such as Saudi Arabia’s SABIC, Germany’s BASF and U.S.-based Dow Chemical Co.
Acquiring LyondellBasell would also give Reliance a leg up in its efforts to gain greater access to the U.S. and European markets. Its bid comes as petrochemical and refining asset prices have fallen globally in the wake of the financial crisis.
Reliance is looking to score a bargain by betting on turning around a bankrupt company rather than paying a heftier price for a more stable firm, making Lyondell a ripe target for billionaire Ambani’s plans to expand through overseas buys.
The latest share sale was priced at 1,035 rupees each, or 5 percent below Reliance’s closing price on Thursday.
Valued at $77 billion, Reliance shares lost 1.6 percent to 1,072 rupees by 0725 GMT on Monday, after dropping to as low as 1,022 rupees. The broader market edged up 0.3 percent.
“The valuation of the stock is not overstretched. An acquisition could turn out to be an upside trigger for the stock,” Mathews said.
The buyer of the shares, top Indian insurer Life Insurance Corp of India, held 6.0 percent in Reliance Industries as of Sept. 30, 2009, according to Thomson Reuters data. LIC is the largest institutional investor in Reliance.
Citigroup and Bank of America-Merrill Lynch were arrangers for the latest share sale, sources said. The two also arranged the share sale in September. Bank of America-Merrill Lynch is among advisors to Reliance on its bid for Lyondell, sources have told Reuters.
In December, LyondellBasell filed an amended reorganisation plan with a U.S. court, proposing a $2.8 billion rights issue, to simplify its corporate structure and exit bankruptcy protection with significantly less debt. But the company said it continues to evaluate the Reliance proposal.
A court hearing on the amended reorganisation plan will not be held, however, until after a February hearing on the validity of a settlement with a U.S. unit’s creditors.