COMMENT – Is Reliance Industries delaying Aramco deal?

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At the RIL annual general meeting held last week, Chairman Mukesh Ambani said that there might be a delay in the proposed deal with Saudi Aramco, raising concerns if the Reliance Industries-Saudi Aramco transaction is less desirable now.

“Due to unforeseen circumstances in the energy market and the Covid-19 situation, the deal has not progressed according to the original timeline,” Ambani, chairman and managing director for RIL, informed shareholders. The billionaire punctuated his remarks on the deal saying “our equity requirements have already been met”.

A year ago, in August, when Ambani first announced Saudi Aramco’s intent to invest in RIL’s oil to chemicals (O2C) business, the deal was crucial for RIL’s net debt free target. In less than 12 months, the needs and options for both the seller and buyer has changed. RIL now claims to be net-debt free and may not need the cash proceeds.

In less than four months, RIL has raised Rs 2.12 trillion through a rights issue, combined investments in Jio Platforms, and investment by BP in its fuel retail business. This, Ambani in his address said, is in excess of the company’s net debt of Rs 1.61 trillion as of March.

However, if the Aramco deal happens, the cash proceeds will help buffer any shocks in case RIL’s infrastructure investment trust (InvIT) plan does not work out. RIL transferred its telecom tower and fiber assets, along with the related liabilities, to two separate InvITs last year.

Reliance Industries’ planned sale of a fifth of its oil-to-chemical business to Aramco has stalled after the Saudi company sought at least 20 per cent cut in $75 billion valuation billionaire Mukesh Ambani’s firm was seeking.

Right from the beginning, Saudi Aramco had resisted the $15 billion price tag Reliance had put for the 20 per cent stake in O2C business, which comprises of the company’s twin refineries at Jamnagar in Gujarat, petrochemical plants and 51 per cent in fuel retailing venture.

With crude oil prices plunging due to the pandemic, Aramco has sought a complete re-evaluation, putting a price tag of no more than $57-60 billion for the business, and $11-12 billion for 20 per cent stake. For Saudi Aramco, stake sale in Bharat Petroleum Corporation (BPCL) presents another opportunity to participate in India’s fuel demand growth story.

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