Warchest or not, RIL's Lyondell plans meet premature end

Reliance Industries' 'warchest' seems to have lost its first victim as unsecured creditors, who had steadfastly supported the Mukesh Ambani firm in its fight with Lyondellbasell management to take control of the company, switched sides after being offered an extra $150 million worth of shares.

The company management had managed to win over "a majority of" the secured creditors in December last year by promising to convert all of their $18 billion worth of debt into company equity and on Tuesday.

Unsecured creditors, including bond holders, are estimated to hold around $3 billion of debt in the firm and had been the most vocal supporters of Reliance Industries' bid to take over the embattled petrochem major.

The unsecured creditors, organized under the 'Creditors' Committee' had alleged that the management and secured creditors, such as Citibank and Deutsche Bank, had wrongfully brought about a cross-Atlantic merger that was 'engineered to fail.'

The company will now file a third amended plan of reorganization which will give $150 million worth of shares in the post-bankruptcy company to the unsecured creditors.

"The new agreement increases the amount that will be distributed on the effective date of the Plan to the holders of general unsecured claims.. from $300 million to $450 million. As part of the new agreement, the Unsecured Creditor's Committee, substantial holders of the senior debt and bridge debt and the 2015 Notes Trustee have agreed to support LyondellBasell's Plan," the company said in its statement.

Interestingly, the $150 million worth of shares to be handed over to the unsecured creditors will be appropriated from the portion allocated to secured lenders.

Unsecured creditors had been adamant that secured creditors were as 'guilty' of engineering the catastrophic merger in end 2007 and were pressing to have their debt subordinated to their own.

The company said it now expects to emerge from bankruptcy protection as none of the material stakeholders are expected to oppose its reorganization plan. Under US laws, the company's reorganisation plan must win the approval of all classes of debtors.

"The dispute between the unsecured creditors and these defendants has been limiting LyondellBasell's ability to complete approval of the disclosure statement and Plan of Reorganisation. It is anticipated that this can be accomplished soon," the company said.

Under the scheme, likely to be presented in a few days before the bankruptcy court of South District of New York, existing shareholders of Lyondellbasell will lose all their claims over the company, which will be entirely partitioned among different classes of debtors.

The total debt of the company is estimated to be around $21 billion, and holders of the $18 billion secured portion will get nearly all of the post-bankruptcy company's shares while unsecured creditors will get $300 million cash and $150 million worth of shares.

The old promoters too will come back into the company as it will issue fresh shares, in addition to those issued to debtors, to 'sponsors' to raise operating funds of around $3 billion.

RIL had been building up a 'warchest' of nearly $2 billion dollars over the last six months by selling its treasury shares. It had said that it is eyeing "global opportunities" and had even sent a team to negotiate with the management and creditors to thrash out a revival plan involving itself.

Technically, RIL can still acquire a minority stake in the company but is unlikely to do so as it will have to shell out a market price for the firm after it emerges from bankruptcy.