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MUMBAI – Even in tough times, some deals are too important to let slip. One of them is Saudi Aramco’s intention to acquire a 20% stake in Reliance Industries’ oil and chemicals business at a generous $75 billion valuation. Terms might get tweaked, but both sides have strong motivation to get it done.
The spread of Covid-19 has dampened economic activity worldwide. Although the equity value for the Reliance conglomerate has soared by 78% to $182 billion since it announced a non-binding letter of intent with Aramco in August 2019, earnings at its petrochemical unit are down about 30%, in line with lower Brent crude prices. Saudi Arabia’s move earlier this year to flood the market with oil contributed to a slide, further complicating the plan to bring together the world’s largest producer and one of the biggest and most complex refinery operations.
Under the circumstances, most investors would probably just walk away. But $1.9 trillion Aramco is no ordinary investor. It is seeking greater security over where it sells crude and creating multiple joint ventures to capture a higher part of the energy value chain. As the world’s third largest oil importer, India is too good to give up.
The pair have resumed talks and Aramco wants to conduct a physical inspection of assets, according to Indian broadcaster ET Now. The Saudis also might want to renegotiate the price or adjust the payment schedule. That would help it avoid the perception of having overpaid and of being profligate with nationally treasured energy proceeds. Likewise, Reliance may be keen to accommodate a face-saving modification to keep the right partner for its crown jewel.
Boss Mukesh Ambani is no longer in need of the proceeds after reeling in billions of dollars from Facebook, buyout shop KKR and others for stakes in Reliance’s digital and retail businesses at valuations of about $70 billion and $62 billion, respectively. An energy deal would help crystallise a value for the empire’s third pillar. Ambani has made no public statements about succession but having three similarly sized divisions would help smooth any effort to carve up the group as Ambani’s three adult children play more prominent roles. It’s one more reason that Aramco-Reliance is a transaction too strategic to fail.
– Reliance Industries is resuming talks over a 20% stake sale in its oil-to-chemicals business to Saudi Aramco, after the pandemic stalled a transaction agreed in August 2019, Indian broadcaster ET Now reported on Nov. 9, citing unnamed sources.
– The Indian company said at the time of the original announcement that the deal was based on a $75 billion enterprise value for the unit, which includes refining, petrochemicals and fuel marketing. The proposed investment was subject to due diligence, Reliance added.
ZAWYA