On Tuesday 23 June 2020, Reliance Industries Ltd. Chairman, Mr. Mukesh Ambani, said that the oil-to-telecom conglomerate is working on a USD 15 billion deal, based on an enterprise valuation of USD 75 billion, with the global oil giant Saudi Aramco. RIL is planning to sell 20 percent stakes in its oil-to-chemical business in order to fulfill its promise of becoming a net debt-free company till March 2021.
In August 2019, Ambani talked about sales of 20 percent stakes its O2C business that comprises its twin oil refineries situated at Jamnagar, Gujarat, and other petrochemical assets to the world’s largest oil exporter. The deal was to be concluded by March 2020; however, it got delayed due to the coronavirus crises. Till now the company has not given any timeline for its completion.
In a letter to the shareholders, in the company’s annual report, Mukesh Ambani said, “In the energy businesses, Reliance is working to complete the contours of a strategic partnership with Saudi Aramco. The partnership gives our refineries access to a wide portfolio of value accretive crude grades and enhanced feedstock security for higher oil to chemical conversion.”
“Reliance and Aramco share a common outlook and vision on the evolution of the business in the future with an emphasis on higher oil to chemical conversion,” said Reliance in its annual report. It further said that with the conclusion of this deal, Aramco would not just have a stake in one of the world’s best refineries and the largest integrated petrochemical complex but also access to one of the fastest-growing markets- a readymade market for 5 lakh barrels per day of its Arabian crude, and offering a potentially bigger downstream role in future.
RIL’s net debt on 31 March 2020 was Rs 1,61,035 crore. With 11 tech investors, including Facebook, Silver Lake, Vista Equity Partners, General Atlantic, KKR, Mubadala, ADIA, TPG, L Catterton and PIF, infusing Rs 1.15 lakh crore (at a valuation of Rs 4.91 lakh crore) into Jio platforms, the company has now become debt-free. It also raised Rs 53,124.2 crore through a rights issue. “I have fulfilled my promise to the shareholders by making Reliance debt-free much before our original schedule of 31 March 2020,” Ambani said last week. RIL will hold its first-ever annual general meeting (AGM) on 15 July 2020.
In its May report, HSBC Securities valued the RIL O2C business at USD 65 billion, meaning that Reliance will get only USD 13 billion from the deal. The analysts have said that though the oil price-crash has raised doubts about the deal, yet both the companies would benefit from it.
“RIL’s refinery is one of the most complex refineries in the world, allowing it to earn a significant premium to the benchmark Singapore gross refining margin. The combined petrochemical and refining business should provide a lot more stability to the income reducing the volatility of earnings,” the report said.