MUMBAI: In the second-largest foreign investment in India, Saudi Aramco, the world’s biggest oil producer and the most profitable company in history, will acquire a 20% stake in Reliance Industries’ refining and petrochem businesses for $15 billion. TOI was the first to report about the impending deal in its April 17 edition this year.
The investment, subject to due diligence and regulatory approvals, will help RIL, India’s largest private sector company, cut its debt of Rs 1.54 lakh crore ($22 billion). RIL chairman Mukesh Ambani made the announcement at the company’s annual shareholder meeting here on Monday. The deal signifies “the perfect synergy” between the two companies, Ambani said.
Saudi Aramco has been supplying crude oil to RIL’s Jamnagar refinery — the world’s largest — for over 25 years. While it first showed interest in investing in RIL around the end of last year, talks gathered momentum following the visit of Saudi crown prince Mohammed bin Salman to India in February, during which he met Ambani. MBS has been expanding Aramco, the state-owned company, to new markets, particularly in Asia. With New Delhi suspending Iranian oil import, Saudi Aramco will benefit from the RIL deal.
Under the deal, RIL will carve out the refining, petrochemicals and fuel marketing businesses into a separate division.
Aramco to get 1 seat on RIL board
After creating a separate division for its refining, petrochem and fuel marketing businesses, RIL will issue preferred stocks to Saudi Aramco with respect to this division, which has an enterprise value of $75 billion, including debt.
Saudi Aramco will get one seat on the board of RIL and it will also have the right to appoint its executives in key managerial positions. The division will be converted into a company within five years with Saudi Arabia holding a 20% stake in it.
Once RIL’s oil-to-chemicals division is turned into a separate entity, it will become an investment or holding company on the lines of Tata Sons. Already, RIL’s consumer-facing businesses, Jio and Retail, are separate companies with the parent holding controlling stakes in them.
Saudi Aramco, which is gearing up for an initial public offering, will pay 50% of the total amount to RIL on inking the agreement, which is expected to be completed by March 2020. A part of the remaining amount (25%) will be paid after one year of the completion of the deal. And after the end of the second year, the final tranche of 25% will be paid. The payment structure is similar to what Saudi Aramco had stitched with Saudi Basic Industries Corporation (Sabic), said Reliance Industries executive director PMS Prasad. The proposed investment entails Saudi Aramco supplying 7 lakh barrels a day of crude oil to Jamnagar refinery on a long-term basis.
Saudi Aramco’s proposed investment in RIL is second only to the $16-billion infusion by Walmart in Flipkart in 2018.
Source: The Times of India