Reliance could acquire a 1% stake in the $1.9 trillion-valued Aramco.
Saudi Aramco is in advanced talks to acquire a stake in Reliance Industries Ltd.’s oil refining and chemicals business.
Reliance’s O2C business includes the twin refineries in Gujarat’s Jamnagar and the adjacent petrochemicals complex, besides the petroleum retail joint venture of RIL-BP Plc..
The Saudi Arabian energy giant is in discussions to buy a 20% stake in the Reliance unit in exchange for $20-$25 billion-worth of Aramco shares.
The deal could finalise in as soon as the coming weeks.
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Talks Go Back Two Years
Initiation of talks began 2 years ago but was delayed due to the pandemic as well as falling crude oil prices.
Energy markets have now recovered with crude prices rising 35% this year to $70 per barrel.
If the deal comes into fruition, it would mark Aramco’s first all-stock deal since its IPO in 2019.
What’s In It For India And Saudi Arabia
In the IPO, the Saudi govt sold 2% of the company and raised $30 billion- the record of being the largest first-time share sale on record.
The deal would tighten the alliance between the world’s biggest oil exporter, Saudi Arabia and India, one of the fastest-growing consumers.
Trade between Saudi Arabia and India has enjoyed growth as the latter looks to enhance its energy security and the former looks to trim its support for Pakistan in the Kashmir dispute.
In 2019, Riyadh and New Delhi saw a promotion of their relationship to that of a “strategic partnership”.
Discussions over the deal picked up pace when Reliance Industries Ltd (RIL) had inducted Yasir Al-Rumayyan, Chairman of Saudi Aramco in the capacity of an independent director and the Governor of the Public Investment Fund, on its board.
India-Saudi Relations
India-Saudi relations get warmer especially on the matter of crude price negotiations.
This is a turnaround for the countries’ relations which had seen some difficulties back in May.
Saudi Arabia had raised the official selling price (OSP) of oil shipments to Asia.
This was seen as a reaction to India’s plan to cut crude imports from the country.
Saudi Arabia’s move prompted India to ask public sector crude refining companies to increase imports from the US and Africa.
Business Gains
The Aramco-Reliance deal would increase Aramco’s crude sales to India.
In July, Saudi Arabia shipped 613,000 barrels a day of crude to India which is 10% of its total exports.
Aramco could also meet its target of doubling its refining capacity to between 8 million and 10 million barrels of crude a day.
The firm had a capacity of 3.6 million barrels a day as of the end of last year.
Strategic Benefits
The deal ensures a dedicated market for Aramco’s crude.
Reliance will be able to buy 500,000 barrels of crude oil every day on a long-term basis from Aramco.
The figure is 28% of the company’s Jamnagar refinery requirement.
The business will also be a value-creating proposition for both the giants as it focuses to channel 70% of the refined crude for manufacturing high-value chemical products.
For Reliance, it would help secure a consistent oil supply for its refineries and also make it a shareholder in Aramco.
Reliance could acquire a 1% stake in the $1.9 trillion-valued Aramco.
Meanwhile, Reliance is also ramping up investment in solar, batteries, fuel cells and hydrogen, with plans to invest Rs 75,000 crore.
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