Reliance to call off stake sale deal with Saudi Aramco

In a move that was not exactly surprising, Reliance Industries and Saudi Aramco, have mutually decided to rework and reassess their agreement . Under the 2019 original deal, Reliance was to sell 20% in its oil-to-chemicals business to Saudi Aramco for a consideration of $15 billion. That deal was to value the entire oil to chemicals business of Reliance Industries at $75 billion.

The deal ran into rough waters in 2020 after the COVID pandemic resulted in a sharp fall in crude oil prices (even dipping into negative in an extreme case). At that point, Aramco had sought a lower pricing for the deal but Reliance had been unwilling to negotiate on the pricing.

The deal remained in cold storage till the last AGM of RIL confirmed the appointment of Yasir Al Rumayyan of Aramco on the board of Reliance Industries.

What then has changed in the last couple of months? Broadly, there could be 2 reasons for the deal being called. Firstly, back in 2019, Reliance was in need of a huge mound of cash to become zero-net debt by 2021.

That was achieved by monetizing its stake in the digital and retail businesses as well as record rights issue of Rs.53,125 crore. Reliance had raised enough cash for its zero debt goal, even without monetizing its oil to chemicals stake.

The second reason is more important. In the last few months, Reliance has committed $10 billion to alternate green energy over 3 years which includes manufacturing photovoltaic cells, solar energy support systems and electrolysers for hydrogen.

Bernstein and other large global brokers have already valued the clean energy franchise at close to $70 billion. It hardly made sense to put a value on O2C business at this point of time.

Reliance is not alone as even the Adani group has committed huge funds for green energy. This is the emerging area of energy and is likely to command premium valuations. Reliance is clear that the current deal to sell 15% in the O2C business would tantamount to undervaluing the energy franchise of the company. 

From the perspective of Aramco, they are obviously having second thoughts about committing $15 billion into the fossil fuels business. They would rather pay more to get a stake in the new energy business.

The fact that Yasir Al Rumayyan will continue on the RIL board hints that the relationship may still be on; probably of a more morphed nature. For now RIL has withdrawn its NCLT application to hive off its O2C business into a separate entity.

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