The Hindu Business Line
RIL stake sale in oil-to-chemical biz will be the largest deal in its history
It is also among the biggest foreign investments in the country
Saudi Arabian Oil Co (Saudi Aramco), the world’s largest oil producer, will buy a 20 per cent stake in the oil-tochemicals business of Reliance Industries Ltd (RIL) for ₹1.03 lakh crore, pegging the enterprise value of the Mukesh Ambani-led company’s most valuable business division at $75 billion.
The oil-to-chemicals division of RIL will eventually be spun off into a separate company in which Saudi Aramco will hold the 20 per cent stake, a Reliance Industries executive said, asking not to be named.
The two companies have signed a non-binding letter of intent on the proposed investment.
RIL Chairman and Managing Director, Mukesh Ambani, chose the firm’s annual general meeting (AGM) on Monday to announce the “long-term partnership” with Saudi Aramco, which has been supplying oil to its Jamnagar refinery “since its inception every single day for 20 years”.
The deal is the biggest foreign investment in ‘the history of Reliance’ and amongst the largest foreign investments into India, Ambani said, adding that “the coming year will mark the beginning of the most ambitious value creation strategy in the history of Reliance” at the heart of which is the “innovative philosophy of transforming relationships into partnerships” with “leading global and Indian companies”.
The deal with Saudi Aramco will cover all of RIL’s refining and petrochemicals assets, including its 51 per cent stake in a recently announced joint venture company with British oil and gas firm BP plc to run retail fuel stations.
Reliance, Ambani said, will receive ₹7,000 crore from BP for acquiring a 49 per cent stake in the petro-retail JV.
“The commitment from these two transactions (Saudi Aramco and BP) are about ₹1.1 lakh crore,” Ambani said. In effect, Reliance will receive ₹1.1 lakh crore in cash from these two deals.
Eyeing refining ventures
Saudi Aramco has been eyeing stakes in refining ventures overseas to guarantee new outlets for its crude oil. It has separately agreed to invest in a planned 60-million tonne (mt) refinery and petrochemicals complex in Maharashtra along with Abu Dhabi National Oil Company (ADNOC) and India’s staterun oil refiners such as Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation.
As part of the deal with RIL, Aramco will also supply up to 700 (KBPD) or 500,000 barrels per day of crude oil on a long-term basis to Jamnagar refinery.
“This signifies perfect synergy between the world’s Chairman of Reliance Industries Ltd Mukesh Ambani with wife Nita Ambani and mother Kokilaben Ambani arrives for the company’s 42nd annual general meeting in Mumbai on Monday
largest oil producer and the world’s largest integrated refinery and petrochemicals complex,” Ambani said.
“Our oil to chemicals business which has a unique combination of scale, complexity and resilience to business cycles, in partnership with Saudi Aramco, is best placed to pursue growth and value creation, while adding substantial value to the feedstock provided by our strategic partner,” Ambani noted.
RIL’s oil-to-chemicals business earned revenue of ₹5.7 lakh crore in FY19 from processing 68.3 mt of crude, clocking exports of ₹2.24 lakh crore and EBITDA of ₹52,041 crore.
“We expect to complete these transactions within this financial year subject to due diligence, definitive agreements, regulatory and other customary approvals,” Ambani stated.
The deal is expected to fire-up Asia’s third biggest economy, which many believe is slowing due to external and internal headwinds, causing discomfort to the Narendra Modi-led government
which assumed office in May for a second fiveyear term.
“The slow-down in some sectors of the economy is temporary, (but) the fundamentals of the Indian economy are very strong, opportunities will grow further with structural reforms; India has political stability; no power on earth can stop India from rising higher,” Ambani said.
Gagan Dixit, Vice- President, Oil and Gas analyst at Elara Capital said, “The deal would provide much-needed capital for oil to chemicals expansion plans in a phased manner over the next decade as mentioned in RIL’s FY19 annual report, for which we estimate 12 mt rise in petchem capacity requiring an investment of about $11 billion in the long term.”
“We believe the key trigger for conclusion of RIL-Aramco deal would be declining probability of the planned mega refinery in Maharashtra where Aramco had committed earlier as its cost has jumped from ₹3 lakh crore to ₹4 lakh crore due to delays,” he added.