After lacking two self-imposed deadlines, billionaire Mukesh Ambani’s Reliance Industries Ltd has shelved a proposed deal to promote a 20 per cent stake in its oil refinery and petrochemical enterprise to Saudi Aramco for an asking of $15 billion because the Indian agency focuses on new power enterprise.
“Due to evolving nature of Reliance’s business portfolio, Reliance and Saudi Aramco have mutually determined that it would be beneficial for both parties to re-evaluate the proposed investment in O2C business in light of the changed context,” the Indian agency stated late Friday, including that it’s going to proceed to be Saudi Aramco’s “preferred partner” for investments in India’s non-public sector.
Ambani had in firm’s annual common assembly of shareholders in August 2019 introduced talks to promote a 20 per cent within the oil-to-chemicals (O2C) enterprise, which contains its twin oil refineries at Jamnagar in Gujarat, petrochemical belongings and 51 per cent stake in gas retailing three way partnership with BP, to the world’s largest oil exporter.
At that point, he had introduced the deal would shut by March 2020. The deadline was missed and the corporate blamed pandemic controlling restrictions, imposed in the direction of the tip of March 2020, for hampering due diligence.
This yr too, on the AGM, Ambani acknowledged that the deal would shut by the tip of the yr. At the identical occasion, he additionally introduced new power forays together with a plan for growing one of many largest built-in renewable power manufacturing amenities on the planet.
The advanced would encompass a photo voltaic photovoltaic module, battery, inexperienced hydrogen and gas cell factories and price Rs 60,000 crore. While new deadlines for Aramco deal and new power forays had been introduced in the identical breath, it wasn’t clear what modified between June and now to website shifting focus for the “re-evaluation.”
Reliance additionally determined to withdraw the proposal filed earlier than the National Company Law Tribunal (NCLT) to separate O2C enterprise from the corporate. New power companies are housed in separate subsidiaries of RIL and will not be a part of O2C. How the brand new power enterprise housed in separate subsidiaries impacted negotiations for O2C stake wasn’t clear. It additionally wasn’t clear why the separation proposal filed earlier than NCLT was withdrawn if Aramco remained fascinated about shopping for a stake within the O2C enterprise and the deal might be concluded in future.
It additionally wasn’t recognized if Aramco was within the new power enterprise as nicely and so a reworked deal wanted to be negotiated. An e mail despatched to the corporate spokesperson on these points remained unanswered.
Reliance within the Friday evening assertion stated it and Saudi Aramco spent two years performing due diligence earlier than reaching a choice to reassess. It stated it should work with Aramco and SABIC for investments within the Kingdom.
“The deep engagement over the last two years has given both Reliance and Saudi Aramco a greater understanding of each other, providing a platform for broader areas of cooperation,” the assertion stated.
Reliance had in August 2019 put a $ 75 billion valuation for the O2C enterprise, valuing a 20 per cent stake at $ 15 billion.
Talks with Aramco dragged on even after the worldwide pandemic broke out amid hypothesis that Aramco had began to baulk on the worth even because it reviewed its funding technique in India. Analysts at Bernstein had lately valued the O2C enterprise of RIL at a comparatively decrease valuation of $ 69 billion.
Oil costs had fallen sharply after the COVID-19 pandemic broke out and this had solid a cloud on the deal. But hopes had been re-ignited in the midst of this yr when experiences advised that the 2 sides had resumed discussions.
With oil costs beginning to rally as soon as once more, there was a way of optimism that the deal would lastly undergo – a view that gained credence when Saudi Aramco chairman Yasir al-Rumayyan was appointed as an impartial director on the RIL board.
O2C doesn’t embrace the upstream oil and fuel producing belongings such because the KG-D6 block within the Bay of Bengal. A stake in Reliance’s O2C enterprise would have given Aramco an entry into one of many world’s fastest-growing gas markets. It would even have given it a ready-made marketplace for 5 lakh barrels per day of its Arabian crude and provide a probably larger downstream position sooner or later.
Aramco has an fairness stake in China’s largest O2C undertaking at Zhejiang with a long-term crude provide settlement and a plan to construct a community of stores. It additionally has a gas retailing three way partnership with Sinopec working 1,000 stores.
An funding in Reliance’s O2C subsidiary might have given Aramco an identical footprint – a stake in India’s largest O2C undertaking with a long-term crude provide settlement and participation in gas retailing through the Reliance-BP three way partnership.
Over the previous years, the oil-to-telecom conglomerate has segregated companies into separate verticals – Jio Platforms homes the corporate’s digital and telecom unit, retail is a separate unit and oil refining and petrochemical segments have been carved into the O2C sector to draw strategic partnerships.
The agency had lately introduced carving out the O2C enterprise as a separate subsidiary to help strategic partnerships and new traders in an effort to speed up its new power and materials plans. That course of has now been halted.