Saudi Aramco to acquire 20% of Reliance’s oil refining unit

Financial Times
August 13th 2019


Saudi Aramco has agreed to take a 20 per cent stake in Reliance Industries’ refining and petrochemicals business, as the world’s largest crude oil exporter deepens its ties with India, the fastest-growing energy consumer. The deal, which values the business at $75bn including debt, would be one of the largest foreign investments in India, according to Mukesh Ambani, Reliance chairman, who disclosed the sale at a company shareholder meeting in Mumbai on Monday. Mr Ambani, Asia’s richest man, said the deal would strengthen links between Saudi Aramco, the world’s largest oil producing company, and Reliance, which owns an enormous refinery and petrochemicals complex in Gujarat on India’s west coast. “Now we have transformed our longstanding relationship of two decades, based on mutual trust, into a partnership of growth potential for many years to come,” said Mr Ambani. As part of the agreement, Saudi Aramco will provide Reliance’s refinery business with about 500,000 barrels of oil a day. Reliance said the terms of the deal had yet to be finalised and it was subject to regulatory approval. Khalid Al Dabbagh, senior vice-presidentdent of Finance, Strategy & Development at Saudi Aramco, said: “What has been announced today is a letter of intent.” The deal was at a “very early stage”, he added, with both due diligence and board approval still required. The planned deal comes as Saudi Aramco is expanding internationally and has reignited the process for an initial public offering. The company has increased its investments in Asian refineries in recent years as it seeks to lock in sales of crude in the coming years. It has long sought a bigger presence in India to take advantage of the country’s rising oil demand. Oil and gas majors are targeting India as they bank on the country’s swelling middle classes to propel energy demand. They are particularly trying to gain access to the retail fuels market. Last week, UK energy company BP said it had agreed to form a petrol station network and aviation fuels business with Reliance in India. Saudi officials, including crown prince Mohammed bin Salman, have visited India in recent months, while Mr Ambani visited Saudi Aramco’s headquarters in the eastern province of Dhahran this year.
In Saudi Aramco’s earnings statement on Monday, its first ever half-year report, Amin Nasser, the chief executive, said the company’s acquisitions in “key international markets” would help increase refining and chemicals capacity and diversify its operations. Saudi Aramco reported net income of $46.9bn in the first half of 2019, as the state energy group was hit by lower oil prices. This was 12 per cent lower than a year ago, but the results reaffirmed Saudi Aramco’s status as the world’s most profitable company. The Saudi Aramco partnership is the latest in a series of deals by Reliance to create joint ventures and sell-off non-core assets as it seeks to cut the company’s debt pile that has ballooned thanks to the huge investment in Jio, the company’s mobile network operator. PMS Prasad, Reliance Industries’ executive director, told reporters within five years the refining and petrochemicals unit will become “an independent, standalone entity” that may even be listed. But 80 per cent will remain owned by Reliance. As part of the deal Saudi Aramco will be able to appoint senior managers within the unit and will get seats on its board. It will also get one seat on the main Reliance board. The two companies aim to close the deal by March 2020, when 50 per cent of the cost will be paid, Mr Prasad said. The remainder will be paid in two instalments in subsequent years. Reliance had initially sought a higher valuation of upwards of $80bn for the division, according to one person close to the talks. The petrochemical and refinery units accounted for 86 per cent of Reliance’s Rs642bn ($9bn) earnings before interest, tax, depreciation and amortisation in the 2018 financial year. Reliance had made several proposals to Saudi Aramco, including the offer of a 10 per cent to 20 per cent stake, the person said. Saudi Arabia had sought an even greater share.




Link: https://www.ft.com/content/c8ca3e72-bcc8-11e9-b350-db00d509634e

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