InvestorQ : Is Saudi Aramco still looking at an investment in Reliance Industries or has the plan been put off?
Arusha Ray made post

Is Saudi Aramco still looking at an investment in Reliance Industries or has the plan been put off?

1 year ago

Reliance Industries has not been talking much about the Saudi Aramco deal and in fact the O2C plan of Reliance did not even feature any discussion on Saudi Aramco. However, Saudi Aramco has claimed that they continue to remain in discussion with Reliance Industries for potential partnership. This was disclosed by Morgan Stanley after they had an update call with Saudi Aramco on the status of the Reliance O2C deal.

Currently, asset prices, outlook for the oil sector and the margins are back to August 2019 levels, which has apparently goaded the companies to revive the deal. In fact, the Saudi Aramco con call had clearly indicated that continue to be interested in discussions with Reliance to evaluate partnership opportunities. Both RIL and Saudi Aramco had signed non-binding agreements for the oil-to-chemicals or O2C business of Reliance Industries.

It may be recollected that back in 2019, Reliance had even announced that Aramco would pick up a 20% stake in Reliance O2C for $15 billion. Subsequently, the pandemic set in and oil prices crashed and Aramco was trying to settle for a much lower price which Reliance was unwilling to accede to. However, crude oil prices are up 4 times since April 2020 and 2 times since September 2020.

However, Reliance is not too keen to wait much longer and wants to look at Aramco as one of the options. RIL has already carved out the O2C business into a separate subsidiary to set the foundation for a long-term strategic partnership. Like in the case of Jio Platforms where RIL brought Google and Facebook as strategic investors, even in the O2C case RIL may look at a combination of strategic investors and PE investors.

Saudi Aramco has other considerations too. Their free cash flows of $80 billion may have been depleted by the $75 billion dividend paid out this year. The company projects free cash flows of $115 billion next but to fructify its plans it will need to expand its business in a big way and Reliance fits into that plan.