Reliance-Aramco deal: Reliance Industries and Saudi Aramco have canceled an agreement.
New Delhi:
Reliance Industries and Saudi Aramco have canceled a deal for the state oil giant to buy a stake in the group due to value concerns, sources familiar with the matter said.
They say discussions have broken down about how Reliance’s oil-to-chemicals (O2C) business will be appreciated as the world looks to move away from fossil fuels and reduce emissions. waste, they said.
Instead, Reliance will now focus on signing more contracts with companies to make specialty chemicals more profitable, one of the sources said.
Aramco, the world’s top oil exporter, has signed a non-binding agreement to buy a 20% stake in Reliance’s O2C business for $15 billion in 2019. Last week, the companies announced. will re-evaluate this deal, concluding two years of negotiations.
The deal’s collapse reflects a changing global energy landscape as oil and gas companies shift away from fossil fuels to renewables. Valuations of refining and petrochemical assets have dropped especially after the recent COP26 climate talks in Glasgow, said a second source involved in discussions on the deal.
Even so, Reliance stuck with a $75 billion valuation for its O2C business done in 2019, he said.
“The consultant’s assessment shows a significant cut in valuation … more than 10%,” he added.
“Reliance highlighted the difficulty of separating Jamnagar from its clean energy business as a reason for not completing the transaction, although we suspect business alignment and valuation were also key reasons.” , Bernstein wrote in a recent note, referring to Reliance’s massive refining complex in Gujarat.
A second source familiar with the due diligence review said the procedure had been paused during the “early stage review”. Reliance is seeking advice from Goldman Sachs and Aramco is seeking help from Citigroup, the sources said. The banks declined to comment.
Jefferies cut the value of Reliance’s energy business to $70 billion from $80 billion, while Kotak Institutional Corporation cut the enterprise value of its O2C business to $61 billion. Bernstein valued that business at $69 billion.
Without confirming whether the deal has been postponed, Saudi Aramco said it has a long-standing relationship with Reliance and will continue to seek investment opportunities in India.
Reliance said it will continue to be Saudi Aramco’s preferred partner for private sector investments in India and will work with Saudi Aramco & SABIC for Saudi investments. Reliance is the largest Indian oil buyer from Saudi Arabia.
Change strategy
Reliance, which aims to become net carbon-free by 2035, plans to switch to cleaner sources of raw materials and energy at its O2C business and expand into solar, batteries, and electrolytics to expand its footprint. manufactures hydrogen and hydrogen fuel cells.
“The full value of this integration is also best exploited by repositioning existing O2C assets as well as evaluating multiple joint ventures and partners in downstream ventures in the specialty chemicals sector. “, said a source familiar with the matter.
Demand for specialty chemicals – used in industries such as agrochemicals, colorants, dyes, FMCG, pharmaceuticals, fuel additives, polymers and textiles – will increase in India as its economy expands. The chemicals also provide better returns for companies than conventional fuels as demand for gasoline and diesel is expected to decline with more electric vehicles and renewable energy.
According to a government report, India’s specialty chemicals sector is expected to grow from $32 billion in 2019 to $64 billion in 2025, helping to boost exports as global companies look to reduce costs. risks in their supply chain depending on China.
The conglomerate controlled by billionaire Mukesh Ambani has announced a $2 billion investment in the UAE’s TA’ZIZ chemicals joint venture between the Abu Dhabi National Oil Company and sovereign wealth fund ADQ.
Saudi Aramco has also shifted its focus to hydrogen and renewables as it moves to zero by 2050.
(This story has not been edited by NDTV staff and was automatically generated from the feed provided.)
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