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 Mukesh Ambani's Reliance Industries' refining, petrochemicals and fuels marketing businesses. Saudi Aramco’s potential 20 per cent stake which is based on an enterprise value of $75 billion for the division is worth around $ 15 billion. “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,” Ambani said addressing RIL's 42nd annual general meeting on Monday. “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
The company has been sitting on a huge pile of debt. The gross debt stands at £28 billion. This deal could reduce the debt of the company by over 30 per cent after considering the reduction of interest on debt. This could impact the EPS by 17-18 per cent. 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. Aramco’s proposed investment of over $15 billion could turn out to be a big booster shot for the sagging investment scenario in the country. “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 £11 billion,” Ambani said.
He said the company will become debt-free by 2021. “We have a very clear road map 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.” After TCS, RIL is the second most valued company in India with a market capitalisation of over £7.36 billion.
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. The company had last week announced that BP is acquiring 49 per cent stake in its fuel retailing business. Reliance will get £700 million from BP for this transaction.
RIL’s Jamnagar refinery is the largest and most complex refinery in the world. The proposed investment would result in Saudi Aramco supplying 500 KBPD of Arabian crude oil to the Jamnagar refinery on a long term basis.
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.