Aramco eyes $15bn stake in Indian oil-to-chemicals company

12 August 2019
The deal could see Saudi Arabia's national oil company acquire 20 per cent of Reliance Industries' oil-to-chemicals business

Saudi Arabia's national oil company Saudi Aramco is considering a $15bn investment to acquire 20 per cent of the oil-to-chemicals business of India’s Reliance Industries.

Speaking on 12 August at the Reliance annual general meeting in Mumbai, Reliance chairman Mukesh Ambani said "Saudi Aramco and Reliance have agreed to form a long-term partnership in our oils-to-chemicals division.”

The proposed partnership includes the 1.24 million barrel-a-day (b/d) Jamnagar refining complex on India’s west coast.

As part of the deal, Saudi Aramco will provide Reliance’s refinery business with about 500,000 b/d of oil.

“This signifies the perfect synergy between the world’s largest oil producer and world’s biggest integrated refinery and petrochemicals complex,” said Ambani.

March deadline

Reliance values its oil-to-chemicals division at $75bn including debt, implying a $15bn evaluation for the 20 per cent stake.

The deal will be one of India’s biggest foreign direct investment (FDI) deals and should be completed by March, Ambani said.

He added that it would be subject to due diligence, definitive agreements, and regulatory and other approvals.

Saudi Aramco and Reliance Industries have agreed to a non-binding Letter of Intent regarding a proposed investment in the Indian company’s oil-to-chemicals division comprising the refining, petrochemicals and fuels marketing businesses, according to a statement from Reliance.

Early stage

Speaking in an earnings call, Saudi Aramco CFO Khalid al-Dabbagh said that the deal with Reliance is in a “very, very early stage”.

“It is part of our efforts to advance our global downstream growth strategy," said Al-Dabbagh. "We regularly evaluate new business opportunities worldwide and as you, and everyone, knows India is a large country with large demand and growing demand.

“So, what has been announced today is a letter of intent," he said. "This is the very, very early stages of the deal that would allow us to conduct a very quiet due diligence going forward and that deal would be announced – if confirmed and executed.”

Reliance has been selling assets from mobile-phone towers to oil and gas fields to reduce debt that has risen over the past few years as it poured money into new sectors, including telecommunications.

It is among the biggest companies in the world in terms of steam cracker capacity, capacity to produce polyester and intermediates, and polyolefin capacity.

The conglomerate’s debt stood at $32bn at the end of December, according to data compiled by Bloomberg.

Aramco strategy

“Our analysis indicates that the total earnings from the combined refinery sites in India are the highest in Asia outside the mega-refiners of Sinopec and PetroChina," said Alan Gelder, vice president refining and chemicals at analyst Wood Mackenzie.

“Crude supplies of 500,000 b/d represents about 40 per cent of Reliance’s crude intake, significantly higher than the stake taken, although Saudi Aramco historically supplied 20 per cent of Reliance’s crude oil requirements,” he said.

He added: “The deal is further evidence that Saudi Aramco is executing its long-term strategy to increase its refining and petrochemical capacity.

“This strategy is being achieved through a combination of project and acquisitions, with this acquisition following on from last year’s acquisition of Sabic and Sasref," he said. "And the memorandum of understanding Aramco signed this year to acquire a 9 per cent stake in Zhejiang Petrochemical’s 800,000 b/d integrated refinery and petrochemical complex in Zhoushan, China.

“Saudi Aramco continues to show keen interest in accessing the Indian market, which has the strongest long-term growth prospects.

“Aramco is also demonstrating discipline in targeting strongly competitive assets that are well placed, through petrochemical integration, to be sustainable through the energy transition.”

Aramco reported half-year results for the first time on 12 August, showing first-half profit declined 11.5 per cent on the back of lower oil prices.

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