Len Blavatnik led LyondellBasell is bunking RIL’s $12Bn valuation as too low. Len bought Basell Polyolefins from Royal Dutch Shell and BASF for $5.7 Bn in August 2005. Then in 2007, It bought Lyondell Chemical Company for $12.7 Bn, so lets say he’s already sunk close to $19Bn in this.

Lyondell’s buyout was majorly funded by debt from a consortium of lenders which included Merrill Lynch, Goldman Sachs, Citigroup, ABN Amro and UBS among others.

The LBO turned soar for Len when the demand for products suddenly collapsed in the second half of 2008 and the company was unable to pay fees and interest totalling $281 Mn on a bridge loan due on 19th Dec’08. As a result of which, The US unit of LyondellBasell filed for Chapter 11 bankruptcy protection in Jan'09 to facilitate a restructuring of its $26 Bn debt.

During bankruptcy, LyondellBasell added further burden to its existing debt by obtaining $8 Bn in debtor-in-possession (DIP) financing to fund continuing operations. The DIP financing included two credit agreements: a $6.5 Bn term loan (comprising $3.25 Bn in new loans and a $3.25 Bn roll-up of existing loans) and a $1.62 Bn asset-based lending facility.

Lyondell has submitted a restructuring plan which involved LBI repaying its $8 Bn bankruptcy loan in full and giving an equity stake in the new firm to lenders, including sponsors of the $2.8 Bn rights offering.

Law firm Milbank Tweed Hadley & McCloy is representing the lenders group.

What is Reliance offering?

RIL is offering about $12 Bn for LyondellBasell which posted $50.7 Bn in sales last year, valuing Lyondell 1/4th of sales. The petrochemical company has $27.1 Bn of assets and $19.3 Bn of debt, according to its bankruptcy filing.

RIL also made a statement recently that it will not buy Lyondell’s debt. According to Macquarie Research, RIL has enough resources to buy Lyondell. It has $4 Bn of cash, $8 Bn of treasury stock.

Will the transaction go through if the debt is left out?

Whether the asset will sell or not is tied up to what debtors get out of it.

Earlier in 2008, Citigroup sold $1.9 Bn of its Lyondell loan to Apollo Management at about 85 cents to a dollar, the prices of which tumbled to 44 cents to a dollar just after the crash.(And Leon took a lot of ridicule for catching that falling knife)

If we consider a pricing of 75 cents to dollar for the Lyondell debt which currently stands at $26 Bn, the cost of debt alone would be about $19 Bn, i.e. if the debtors agree for a haircut.

I wonder if RIL were to go for a $10 Bn loan - which Wallstreet will syndicate - how would they like to syndicate a loan that pays them back their bad debt with haircuts...

I really think this one deal is not possible with so many debtors holding high priced bag..

LyondellBasell which employs more than 17000 people generates about 34% of its revenue from fuels, 30% from chemicals and 35% from plastics.