In what could be the largest foreign direct investment in India, Saudi Aramco has proposed to sign a non-binding Letter of Intent (LOI) to acquire a 20 per cent stake in the oil to chemicals (O2C) division — comprising the refining, petrochemicals and fuels marketing businesses — of Reliance Industries Ltd (RIL).
Saudi Aramco’s potential 20 per cent stake which is based on an enterprise value of $75 billion for the O2C division of RIL is worth around $ 15 billion, or Rs 1,06,000 crore.
Addressing the annual general meeting of RIL in Mumbai Monday, Mukesh Ambani, Chairman and Managing Director of Reliance Industries, said: “The deal with Aramco will include of Reliance’s refining and petrochemicals assets as well as the remainder of stake the firm has in fuel retailing business after selling 49 per cent to BP of Britain.”
Will reduce RIL debt
Aramco’s proposed investment of over Rs 1 lakh crore could turn out to be a big booster shot for the sagging investment scenario in the country. For RIL, the second most valued listed company, it will help in reducing the debt burden. The largest oil producer’s interest is a strong endorsement of the quality of assets and operations as well as of the potential of India.
“We expect to complete these transactions within this financial year subject to definitive agreements, due diligence, regulatory and other customary approvals. The commitments from these two transactions are about Rs 1.1 lakh crore,” Ambani said.
RIL and Aramco, the world’s largest integrated oil and gas company producing one in every eight barrels of crude oil globally, had been negotiating the deal for the last couple of months.
Under the non-binding LOI, the proposed investment is subject to due diligence, and the executed definitive agreement will be subject to regulatory and other customary approvals. The parties will make an announcement once a definitive agreement is executed, Ambani said.
“I am truly delighted to welcome Saudi Aramco, one of the largest business enterprises in the world, as a potential investor in our oil to chemicals division. We have a long-standing crude oil relationship with Saudi Aramco and we would be happy to see this further strengthened with this investment. Saudi Aramco’s interest is a strong endorsement of the quality of our assets and operations as well as of the potential of India,” he said.
The company had last week announced that BP is acquiring 49 per cent stake in its fuel retailing business. Reliance will get Rs 7,000 crore from BP for this transaction.
“Saudi Aramco and RIL have a long-standing crude oil supply relationship of over 25 years. Saudi Aramco is the world’s largest and lowest cost-per-barrel producer of crude oil, is geographically close to India, and offers a wide range of crude supply options. To date, it has supplied approximately 2 billion barrels of crude oil for processing at RIL’s refinery at Jamnagar,” Ambani said.
RIL’s Jamnagar refinery is the largest and most complex refinery in the world, with deep integration of refining and petrochemical activities across multiple manufacturing facilities. The proposed investment would result in Saudi Aramco supplying 500 KBPD of Arabian crude oil to the Jamnagar refinery on a long term basis. Ambani said this signifies perfect synergy between the world’s largest oil producer and the world’s largest integrated refinery and petrochemicals complex.
RIL’s oils to chemicals business achieved revenue of Rs 5.7 lakh crore, exports of Rs 2.2 lakh crore and EBITDA (earnings before interest, tax, depreciation and mortisation) of Rs 52,041 crore.
“Since its inception, our Jamnagar refinery has been processing Saudi oil every single day for 20 years. Now we have transformed our longstanding relationship of two decades, based on mutual trust, into a partnership of growth potential for many more years. I feel privileged to welcome Saudi Aramco,” he said.
He said the company will become debt-free by 2021. “We have a very clear roadmap to becoming a zero net debt company within the next 18 months that is by March 2021,” he said.
“As we achieve our zero net-debt target, I assure you my dear shareholders that we will reward you abundantly through higher dividends, periodic bonus issues and other means, and at a more accelerated pace than any time in our history,” he promised shareholders at the AGM. After TCS, RIL is the second most valued company in India with a market capitalisation of over Rs 736,000 crore
Meanwhile, public sector oil companies have proposed a $44-billion oil refinery with Saudi Aramco and Abu Dhabi National Oil Company (ADNOC) in Maharashtra. Though the refinery was initially proposed to be built at Nanar, Ratnagiri district, farmers refused to surrender land, fearing it could damage a region famed for mango and cashew plantations.