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

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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.

Non-bind­ing pact

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.


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