Lyondell creditors back Reliance Industries

In a boost to its bid to acquire troubled petrochem major LyondellBasell Industries, Reliance Industries (RIL) has got support from the official, court-recognised committee of unsecured creditors.

The committee, which represents the interests of a large number of creditors who have together lent billions of dollars to the petrochem company, has urged the court to allow it to directly work with potential investors, including RIL, to arrive at a deal to rescue the company.

The committee, in a filing before the bankruptcy court of New York handling the issue, expressed fear that the LyondellBasell management may not give due consideration to the RIL proposal and urged the court to let it work out a parallel plan along with RIL and others.

It pointed out that the interest of a potential investor like RIL may not be compatible with those of the institutional investors already suggested as possible rescuers by the management.

“A sale to, or other significant investment by, a strategic investor [like RIL] would interfere with the interests of these institutional investors who have powerful influence over debtors [LyondellBasell management],” it said, requesting the court to grant the committee the power to work on an alternate rescue plan with companies like RIL.

“The committee’s alternate plan would contemplate a transaction with a strategic investor such as RIL, should the debtors, as anticipated, fail to do so.. It is likely that the RIL proposal (or any proposal from another interested party) would be significantly more beneficial to creditors and the estates than the debtors’ [company’s] plan with the present rights offering sponsors [rescuing investors],” the committee of unsecured creditors said in the filing.

According to the restructuring plan submitted by Lyondellbasell on September 11, three institutional investors, who hold 57% of the company’s total secured debt, will guarantee an issue of $2.5 billion worth of fresh equity in the company. This money would then be used to meet LyondellBasell’s liquidity requirements.

The plan also involved extinguishing all the rights of the current equity holders and forcing other debt holders to write off a large part of their current entitlements.

The committee of unsecured creditors has opposed the plan, worrying about the huge ‘haircut’ they will have to take.

In addition, the committee also brought cases against Access Industries — the parent of LyondellBasell controlled by Russian-born tycoon Len Blavatnik — and the banks and investment funds that financed the 2007 merger that created LyondellBasell.

The lawsuit alleged that the bankruptcy was a direct consequence of the structure of the merger that involved the merged entity take on nearly $21 billion in debt. Some of the banks against whom the cases were filed also figure in the ‘secured’ creditors who are likely to recover more of their debt than the ‘unsecured’ creditors represented by the committee.

The unsecured creditors are also angry that the secured creditors have threatened to block any scheme that did not involve scrapping their earlier lawsuit against those behind the merger.

They also protested the fact that one of the sponsors of the $2.5 billion rights issue is Access, which they see as having been instrumental in the structuring of the catastrophic merger. Under a sponsored rights issue, the underwriters or sponsors get all the shares that were not subscribed to by the different classes of creditors.

As a result, the committee said the current reorganisation plans amounted to “attempts to manipulate the bankruptcy process, the court and the debtors [company] in an effort to evade liability for, or a just settlement of, the claims against them,” by the backers of the plan.

The Wall Steet Journal, meanwhile, quoted Edward Weisfelner, a lawyer for the unsecured creditors’ committee, as saying that under the current plan agreed by the secured creditors and the company, unsecured creditors would have to take a haircut of up to 90%. Instead of $3-$5 billion, they would end up getting just around $300 million, Weisfelner was quoted as saying.

The court will take up the matter before December 15, the date on which emergency loans taken by the company after bankruptcy come up for repayment. According to US bankruptcy laws, the court has the final decision to approve or disapprove any reorganisation plan. However, in the initial stages, the court allows the company to come up with a plan. It is then put to vote by different classes of creditors. The plan can then be vetoed by a substantial group of creditors. However, the court can exercise its powers to force a reorganisation plan if the creditors fail to agree on one.