INDIA BUSINESS WORLD - May 2005
THE MONTH THAT WAS

TEAM TCG BAGS BASELL FOR $5.7 B

Chatterjee and a clutch of New York-based private equity funds yesterday agreed to buy Basell Polyolefins, in a deal worth . 4.4 billion ($5.7 billion), the largest overseas takeover and the first such cross-border leveraged buyout (LBO) involving Indian entities. The deal was concluded late last night in London and comes after BASF and Royal Dutch/Shell, the promoters of Basell, bowed to US pressure and snubbed a rival bid by the National Petrochemicals Company of Iran.

The debt will be serviced by the cash flows of Basell. LBOs gained a cult-like status in the 1980s thanks to takeover artists such as Mike Milken and boutique firms such as Kholberg, Kravis and Roberts, KKR. They have never happened in India. The Netherlands-based Basell has annual revenue of . 6.7 billion (about Rs 37,900 crore), and employs about 6,600 people in 20 factories across five continents.

It opens up opportunities for Haldia Petrochemicals, which not only uses Basell technology but is also promoted by the Chatterjee group. It is also a huge plus for India which has been eager to make its mark on the global economy through its fast growth rate and highly successful, gung-ho entrepreneurial class.

Till recently, the country was largely known for its skills in software development, back-office processing and generic drugs. Reliance Industries was perhaps the only company to make its mark globally in basic manufacturing industry with its huge capacities in petrochemicals and petroleum refining. With the Basell acquisition, the Chatterjee group will challenge the Ambani-promoted enterprise in some of the key petrochem products.

Basell is the world's largest producer of polypropylene (PP) used in packaging and grocery bags with a capacity (including joint ventures) of 8 million tonnes. It is Europe's largest polyethylene producer with a 2.5-million tonne capacity. It also has a strong R&D division and its patented technologies are widely used in industries such as auto.

RELIANCE Industries, on the other hand, had a capacity of 1.1 million tonnes of PP and about half a million tonnes of polyethylene as per its 2003-04 annual report.

Soaring commodity prices have boosted profits of most global chemical companies. TCG and Access hope to take advantage of the continuing uptrend in prices and the absence of large capacities in the coming years to consolidate Basell's position.

TCG is hoping to rope in Haldia in the transaction. The major participants in the $5.7-billion deal, apart from TCG is Access Industries, a New York-based private investment firm founded by Russian oil billionaire Len Blavatnik.

Private equity giant Blackstone group and the Mumbai-based ICICI Venture have also held talks with the consortium's lead partners about participating. Sources close to the transaction said the status of the two firms is not clear. They could chip in with small amounts towards the equity side of the transaction. The final picture will be clear only when the transaction is closed in the second half of 2005.

Merrill Lynch advised the Chatterjee-Access consortium, while Credit Suisse First Boston acted on behalf of the shareholders, BASF and Royal Dutch/Shell. Sources said Haldia Petrochemicals is in talks to raise money from lenders for the transaction.

Haldia, which began production in 2001, subsequently piled up huge losses due to its high interest cost, and had secured a package from the corporate debt restructuring (CDR) forum last year to ease its debt burden. Any further fund raising will have to be cleared by the CDR.

Banking sources said the CDR is likely to meet over the next few days to discuss the issue.

Mr Chatterjee, in a statement issued by Basell, praised the company's "broad-based customer portfolio, premium market position and leading capability in product and process innovation," and added, "we look forward to consolidating Basell's global leadership position through enhanced commitments in technology."