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Tuesday, Nov 19, 2019

RIL unveils blockbuster $15 billion Aramco deal

42nd AGM Reliance Industries to sell 20% in refining, chemicals business in a bid to become a zero-debt firm in next 18 months

business Updated: Aug 13, 2019 15:11 IST
Kalpana Pathak
Kalpana Pathak
Hindustan Times,Mumbai
RIL Chairman Mukesh Ambani arrives at the Reliance Industries Ltd AGM with wife Nita Ambani and mother Kokilaben Ambani.
RIL Chairman Mukesh Ambani arrives at the Reliance Industries Ltd AGM with wife Nita Ambani and mother Kokilaben Ambani.(Aniruddha Chowdhury/Mint)

Reliance Industries Ltd (RIL) is in the process of selling a 20% stake in the company’s flagship chemicals and refining business to Saudi Aramco in a deal valued at $15 billion, as the Indian company seeks to cut its massive debt and secure an assured supply of crude oil to its refineries.

Chairman Mukesh Ambani, Asia’s richest man, announced the proposed transaction at the company’s 42nd annual general meeting on Monday, although the terms of the deal have not been finalized.

The deal, which values the oilto-chemicals (O2C) business at $75 billion, is part of a plan to make RIL a zero-debt company in the next 18 months, Ambani said in a speech at the annual meeting.

“Saudi Aramco will invest in Reliance for a 20% stake in oil-tochemicals division at an enterprise value of $75 billion for the O2C division, which will be demerged into a separate subsidiary in the next five years,” Ambani told shareholders.

In addition to the stake sale to Aramco, RIL will raise $1 billion from BP Plc, which will acquire a 49% stake in RIL’s petro-retailing business for Rs.7,000 crore, said Ambani.

The investments are subject to due diligence, definitive agreements, regulatory and other approvals, Ambani said, adding that the Saudi Aramco partnership will cover all of RIL’s refining and petrochemicals assets, including its 51% stake in the fuel retailing joint venture with BP.

RIL and BP announced a joint venture to open a nationwide network of fuel retail outlets last week.

Ambani is aiming to slash RIL’s ballooning debt after spending as much as $50 billion to propel its telecom business to the top position in India within three years of starting operations, surpassing Bharti Airtel Ltd and Vodafone Idea Ltd.

As part of the proposed deal, Saudi Aramco will also supply 500,000 barrels per day of crude oil on a long-term basis to RIL’s Jamnagar refinery.

Saudi Aramco, the most profitable company in the world, controls the world’s second-largest proven crude reserves at more than 270 billion barrels, and the partnership will go a long way in insulating RIL from any future oil shocks and volatility in crude prices, said industry experts.

“This deal could not only ensure continuous crude oil supply to RIL’s twin refineries but also bring in pricing advantages and give RIL cushion from the uncertain global crude oil market,” an analyst with a domestic brokerage said on condition of anonymity.

“For Saudi Aramco, this deal gives a much sought-after foothold in India, the third-largest consumer of crude oil in the world.”

The proposed deal, once completed, is expected to significantly improve RIL’s debt profile.

The company’s total financial liabilities rose to $65 billion as of March 31 from $19 billion at the end of March 2015, resulting in interest cost rising almost fourfold to $4 billion during the period.

“This programme to aggressively pursue deleveraging in businesses and emerge as a zerodebt company in the next 18 months will strengthen the consolidated balance sheet leading to strong valuation rerating of the stock,” said Ajay Bodke, chief executive officer of portfolio management services at Prabhudas Lilladher.

RIL has developed an oil-tochemical strategy to transform the Jamnagar refinery from a producer of fuels to chemicals, moving up the value chain.

The complexity index of Reliance Industries’ Jamnagar integrated refinery has been enhanced to 21.1 (from 12.7 in 2016) after the commissioning of various integrated projects and petcoke gasifiers.

“The objectives are to preserve as well as upgrade existing refinery margins, while maximizing asset utilization, for a sustainable competitive cost of chemicals,” RIL said in its 2018-19 annual report.

The company ultimately wants to achieve greater than 70% conversion of crude refined in Jamnagar to competitive chemical building blocks of olefins and aromatics.

(The story has been published from a wire feed without any modifications to the text, only the headline has been changed)