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Mumbai: Reliance Industries Ltd (RIL), which is eyeing multi-fold growth and a more widespread global footprint, is targeting US oil refining & marketing companies like Tesoro Corp, Delek US Holdings, Sunoco Inc and Valero Energy Corp for possible acquisition, says Macquarie Research in a new report. The acquisition target so far doing the rounds was troubled petrochemical major LyondellBasell, which is going through a reorganisation under the protection of a US court.
But the Macquarie report lays out several reasons for RIL looking at a new set of companies. For instance, Valero has shut it 235-thousand barrel per day (kbpd) Aruba refinery, while Sunoco has announced plans to shut its 145-kbpd Eagle Point refinery. Sunoco and Tesoro would be attractive takeover candidates given their large retail and infrastructure networks.
As far as Delek is concerned, its lack of refining capacity would fit well with RIL’s strategy to market its own refining products from India. This is despite Delek having a relatively modest retail network and marketing infrastructure. Moreover, Valero has high geographical diversity and complexity, providing the greatest reach for highest-value products across the US, the report said.
The report, coming after RIL’s AGM earlier this week where chairman Mukesh Ambani hinted at scaling up its current businesses and acquiring new ones, said the company is well positioned for a buy in the US at the moment. RIL commissioned its 580-kbpd high-end refinery earlier in the year and, hence, requires a large discerning consumer base.
“Given its larger share of Euro IV/V-compliant gasoline in the product state, the US would be the natural market for the new refinery. Given the unattractiveness of the domestic retail fuel market, superior quality of products and its larger production capacity, RIL will benefit from greater control of an overseas distribution network to maximise its returns,” the Macquarie report states.
Moreover, RIL has the financial muscle to pull off an acquisition. It holds $4 billion in Treasury stock, and if it doubles its current net debt-to-equity of 0.35x, it can borrow another $10 billion.
The largest refining & marketing company in the US has an enterprise value of $12 billion, and the others are less than $7 billion, the report adds.
When asked about RIL’s plans for US acquisitions, an RIL spokesperson said, “Reliance Industries is reviewing a number of global opportunities for growth in its core business....
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