According to individuals familiar with the subject, a contract between Reliance Industries (RELI.NS) and Saudi Aramco (2222.SE) to buy a share in the Indian conglomerate’s oil-to-chemicals sector has been cancelled due to valuation concerns.
Reliance Industries And Saudi Aramco Have Called Off A Deal!
They said that discussions broke out over how much Reliance’s oil-to-chemicals (O2C) business should be valued as the globe attempts to move away from fossil fuels and cut emissions.
According to one of the individuals, Reliance would now focus on establishing multiple deals with companies to create specialised chemicals for larger margins.
In 2019, Aramco, the world’s largest oil exporter, agreed to buy a 20% stake in Reliance’s O2C business for $15 billion in a non-binding agreement. The firms stated last week that they will re-evaluate the transaction, bringing an end to two years of negotiations.
The deal’s failure underscores a shifting global energy environment, with oil and gas corporations shifting away from fossil fuels and toward renewables. Refining and petrochemical businesses have lost value, particularly after the last COP26 climate conference in Glasgow, according to a second source involved in the negotiations.
Despite this, he said, Reliance had maintained the $75 billion estimate for the O2C sector set in 2019.
“Evaluation by consultants showed a significant cut in valuation…more than a 10 per cent cut,” he added.
“Reliance has highlighted the difficulty of separating Jamnagar from the clean energy business as a reason to not complete the transaction, although we suspect business alignment and valuation were also key reasons,”
Bernstein wrote in a recent note, referring to Reliance’s huge refining complex in Gujarat state.
A second source familiar with due diligence said the procedure was halted in “early-stage assessment”. Reliance was seeking advice from Goldman Sachs and Aramco was seeking help from Citigroup, sources said. The banks declined to comment.
Jefferies has cut its valuation of Reliance’s energy business to $70 billion from $80 billion, while Kotak Institutional Equities has cut the enterprise value of the O2C business to $61 billion. Bernstein values that business at $69 billion.
Saudi Aramco said it has a long-standing relationship with Reliance and will continue to search for investment opportunities in India, without saying whether the transaction has been cancelled.
Reliance stated it would continue to be Saudi Aramco’s preferred partner for private-sector projects in India, and that it would engage with Saudi Aramco and SABIC on Saudi Arabian investments. Reliance is the largest consumer of Saudi oil in India.
Change Of Strategy
Do you know Reliance targets for carbon-neutral by 2035?
Reliance plans to transition its O2C business to cleaner feedstock and energy, as well as invest in solar power, batteries, hydrogen electrolyzers, and hydrogen fuel cells.
“The full value of this integration is also best extracted by repurposing existing O2C assets as well as evaluating multiple joint ventures and partnerships in downstream ventures in speciality chemicals,” a source familiar with the matter said.
According to a government assessment, the Indian speciality chemicals sector is predicted to grow from $32 billion in 2019 to an estimated $64 billion by 2025, helping to enhance exports as global corporations seek to de-risk their supply chains that are reliant on China.
Mukesh Ambani has already announced a $2 billion investment in the UAE’s TA’ZIZ chemical joint venture between Abu Dhabi National Oil Co. and sovereign wealth fund ADQ.
Comments are closed, but trackbacks and pingbacks are open.