Saudi Aramco to acquire 20% stake in Reliance oil to chems business

Author: Tom Brown

2019/08/12

LONDON (ICIS)--Saudi Aramco is set take a 20% stake in Reliance Industries’ oil to chemicals division in a deal giving the business an enterprise value (EV) of $75bn, the Indian petrochemicals producer said on Monday.

The two companies have signed a non-binding letter of intent (LoI) that proposes that the key pillar company of the Saudi economy would acquire a significant stake in Reliance’s refining, petrochemicals and fuels marketing businesses.

The deal would be one of the largest investments ever made by a foreign entity in India, Reliance said. An official announcement will be made following the conclusion of due diligence.

Under the terms of the proposed investment, Aramco would also supply 500,000 bbl/day of crude oil to Reliance’s Jamnagar, India, refinery, on a long-term basis.

“We have a long-standing crude oil relationship with Saudi Aramco and we would be happy to see this further strengthened with this investment,” said Reliance chairman Mukesh Ambani.

Reliance is reportedly looking to become a debt-free company by 2021, and the deal could have a substantial impact on deleveraging targets while reducing its exposure to the oil and gas market.

Total outstanding debt held by the company was nearly $42bn as of 30 June this year, according to the company.

Fiscal first-quarter results revealed a 35.5% year on year drop in oil and gas revenue and a Indian rupees (Rs) 249bn ($3.5bn) loss in earnings before interest and taxes (EBIT) terms.

Weaker oil prices also weighed on petrochemicals earnings.

The agreement is the latest in a series of big-ticket investments by Aramco to diversify its portfolio downstream from oil and gas, including another expansion into the Indian market with the $44bn Ratnagiri and Petrochemicals project.

The project, which is expected to boast an annual production capacity of 18m tonnes of petrochemicals products, will be 50%-owned by Aramco and the Abu Dhabi National Oil Corporation (ADNOC), with the other half being held by local oil concerns Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp.

Aramco is also pursuing a $69bn investment in Saudi petrochemicals major SABIC and is considering a $5bn joint venture with Total for a new complex next to its SATORP refining and chemicals site in Saudi Arabia.

The company has also been active in Europe, buying up the 50% stake in its synthetic rubber joint venture with Germany’s LANXESS it didn’t already own in December last year, while SABIC owns a substantial stake in Switzerland-based Clariant.

($1 = Rs71.19)

Pictured: A site operated by Reliance in India
Source: Reliance Industries 

(Update adds additional commentary throughout)