Reliance Industries stands to gain from Saudi Aramco deal: Experts

Reliance Industries (RIL) stands to gain on crude oil supply security and substantial debt reduction, if reports suggesting a deal with Saudi Aramco are true. This is not the first time reports on a possible deal have emerged. “These talks have been around for two to three years,” said an expert, who did not wish to be named.

Saudi Aramco has been vocal about partnering RIL. In December 2018, Khalid Al-Falih, that country’s minister of energy, industry and mineral resources, had in a tweet put out in Arabic, said: “I was delighted to meet (Mukesh) Ambani, chairman of Reliance #RelianceIndustries, where we discussed opportunities for joint investments and cooperation in petrochemicals, refining, and communications projects in Saudi and India.”

Analysts see it as a good move for both companies.  “For the deal to happen, the refining and petchem assets will need to be moved to a separate subsidiary, which means with the holding company discount, debt and interest costs will also go down. In addition, there is greater fuel security,” said an analyst, with a domestic brokerage, who did not wish to be named. As of December, RIL's debt was Rs 2.74 trillion. In the December quarter, its petrochemicals and refining business together contributed a little over 70 per cent to its Ebitda. 

For Saudi Aramco, experts see this move as part of the country’s effort to de-risk its economy from oil’s uncertainties. “Saudi Arabia has been making sincere efforts to pick stakes in business not related to oil, for instance SoftBank and electric vehicles. In addition, with India’s growing demand for automobile fuels, major global oil firms see it as a de-risk exercise by picking a stake,” said a person.

Saudi Aramco also plans to partner in building India’s largest oil refinery on its west coast, with state-run oil refiners. With annual profit of $111 billion reported for 2018, experts say Aramco has enough funds for both — a stake in RIL’s refining and petchem business and the mega refinery. 

RIL is also expanding aggressively, in its retailing, telecom and other consumer businesses. “RIL will not invest further in oil and gas in a significant way. Even if it does, it will utilise investors’ funds, not the company’s or of its shareholders. They may use funds from this deal to fund their Jamnagar refinery’s expansion,” said the person quoted earlier.