The Hindu Business Line : RIL may tap Hualon’s network

Chennai, Sept.10 Reliance Industries’ announcement of an agreement to acquire Hualon Corporation (M) Sdn Bhd from its receivers did not exactly set the stock on fire and understandably so. Though Hualon has sizeable capacity for polyester fibre and yarn (5 lakh tonnes) and an integrated textile manufacturing facility in Malaysia, little is known of what Reliance is paying for the acquisition.

Nor is anything known about the financial position of Hualon, save its turnover of $800 million, which has been in receivership since November 2006. The receivers put the company up for sale in June last. The additional revenues that Hualon is likely to bring to Reliance is not significant given that Reliance’s own turnover is more than $25 billion.

An assessment on what the deal means for Reliance can be made only on the basis of the business synergies that it can derive from the acquisition. What prompted Reliance to go for this obviously beleaguered Malaysian company must have been its relatively new (set up in 1989) textile manufacturing facility which is also integrated. Hualon will add 25 per cent more to Reliance’s existing capacity of two million tonnes of polyester fibre and yarn.

Reliance could be thinking of Hualon as an additional market for its fibre intermediates— purified terephthalic acid (PTA) and mono ethylene glycol (MEG)— for which it has built up sizeable capacity in India. The company can ship the intermediates to Hualon and convert them into fibre there. Such a strategy could also help Hualon by giving it a secure and possibly, an economical source for its raw materials.

Hualon now exports to a diverse set of countries such as Bangladesh, China, Egypt, Hong Kong, Iran, South Korea, Syria, Turkey and Vietnam. Reliance could also be eyeing the possibility of exploiting Hualon’s export networks in these markets for its own fibre and intermediates.

The Reliance stock moved up by 1.32 per cent to close the day at Rs 1,987.20 at the BSE and further appreciation linked to this acquisition is unlikely until full details of the deal emerge.

More Stories on : Textiles | Mergers & Acquisitions | Stocks | Reliance Industries Ltd

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