Saudi Aramco deal will help India’s Reliance to reduce $42bn debt burden
India’s Reliance Industries’ deal to sell a 20 percent stake in its oil to chemicals business to Saudi Aramco will reap major dividends for both companies, analysts said. Under the terms of the non-binding deal announced earlier this week, the conglomerate will get roughly $15 billion for the 20 percent stake, money that it will use to pare its massive debt load. Reliance has an overall debt of nearly $42 billion including $20 billion at its fibre division which the group is currently in talks to sell.
In exchange, Reliance will buy up to 500,000 barrels a day of crude oil from Aramco, more than double its current purchase. Reliance chairman and the country’s richest man, Mukesh Ambani, said that the company had been processing Saudi crude oil every single day for the past 20 years and this deal, among the largest foreign investments in India, signified “perfect synergy between the world’s largest oil producer and the world’s largest integrated refinery and petrochemicals complex.”
The deal will cover all of Reliance’s refining and petrochemicals assets, including 51 percent of its petroleum retail joint venture. Reliance has been on the lookout for strategic partners for its businesses to help it in its goal of reducing its debt, said Ajay Bodke, chief executive officer, portfolio management services at Prabhudas Lilladhar, a brokerage. “Reliance has become a net debt company from a net cash company. Whatever money that flows in from this deal will be used by Reliance to deleverage,” he said. It’s “a marriage made in heaven because you have the largest oil explorer in the world tying up with India’s largest oil to chemicals company,” he added.
Gagan Dixit, vice president institutional equities research at Elara Capital, agreed that the deal will give Reliance “much needed capital.” Plus, “refining is a dying business and they can use this money for the high margin business of chemicals,” he said. That apart, historically Reliance has bought oil from Iran and Venezuela, both of which are under US sanctions. This deal helps Reliance secure its supplies and ensures Aramco that additional business as well, said Dixit. Aramco has been beefing up its business in Asia, especially with some of the large importers of crude oil. With the US, the world’s largest consumer of energy, depending less on Saudi Arabia for oil, Aramco needs new markets to hedge its bets. India, one of the largest energy consumers in the world after the US and China, fits the bill.
This deal provides Aramco with a steady customer in the