MUMBAI: Foreign brokerage firm Credit Suisse believes that global oil producer and refining giant Saudi Arabian Co, better known as Saudi Aramco, may revive its interest in buying the 20% stake in Reliance Industries Ltd’s energy business if global crude oil prices continue their upward trend.
“The deal is not yet closed and with Saudi Aramco not bidding for BPCL (Bharat Petroleum Corp), it is possible that with recovery in oil prices above $50-55/bbl, the deal could be revived,” the brokerage house said in a note.
In 2019, the billionaire chairman and managing director of Reliance Industries Mukesh Ambani had announced to shareholders that the company had entered into a non-binding memorandum of understanding with the West Asian company for the sale of 20% stake in RIL’s oil-to-chemical business at an enterprise valuation of $75 billion.
However, the onset of the Covid-19 pandemic in March and the crash in global crude oil prices in the first quarter of 2020 lead to Saudi Aramco shelving all capital investment plans for the foreseeable future. In October, Aramco’s chief executive officer Amin Nasser told Energy Intel that the company’s “long-term strategy hasn’t changed”.
At its end, RIL has prepared the court for an eventual sale of a stake in its energy business as in April it announced that it will be hiving off its oil-to-chemical business to subsidiary Reliance O2C. In late 2020, the company disclosed the scheme of arrangement for the eventual demerger of the energy business.
Investors and analysts saw the hiving off of the energy assets to Reliance O2C as preparation for the eventual minority stake sale to Saudi Aramco. However, in the company’s annual shareholders’ meeting in July last year, Mukesh Ambani said, “Deal with Saudi Aramco hasn’t progressed as per original timeline due to unforeseen situation in the energy market and Covid-19 situation.”
An improving global crude oil price scenario could potentially allow Aramco to free-up capital as the pressure on its balance sheet eases. Global crude oil prices have risen more than 30% since November on the back of optimism for demand recovery in 2021 due to faster-than-expected normalisation of global economic activity.
Credit Suisse expects Brent futures of crude oil traded in London to average $50 per barrel, an 18% year-on-year rise, “with a gradual step-up through the year as we estimate global crude inventories to normalise towards the five-year average by end of 2021”.