World’s largest oil producer Saudi Aramco has agreed to pick up a 20% stake Reliance Industries (RIL’s) oil to chemicals (O2C) business at an enterprise value of $75 billion, marking the biggest foreign investment in the history of RIL and one of the largest foreign investments in India.
Both companies have signed a non-binding Letter of Intent (LOI) regarding a proposed investment in the O2C division comprising the refining, petrochemicals and fuels marketing businesses of RIL.
Confirming the development, Mukesh Ambani, chairman and managing director, RIL at the company’s 42 Annual General Meeting told the shareholders, “Since its inception, our Jamnagar refinery has been processing Saudi oil every single day for 20 years. Now we have transformed our longstanding relationship of two decades, based on mutual trust, into a Partnership of growth potential for many more years. I feel privileged to welcome Saudi Aramco, which is the largest business enterprise in the world.”
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This comes at a point of time when RIL’s consumer facing businesses of Reliance Jio and Reliance Retail are contributing over 32% EBITDA from just 2% five years ago. The contribution from consumer facing businesses are likely to exceed 50% of RIL's EBITDA in coming years.
As a part of the deal, Saudi Aramco will also provide 5,00,000 barrels per day (bpd) of crude supply to RIL's twin refineries in Jamnagar on a long term basis. The deal will also include RIL's fuel retailing business in which British oil major BP has bought 49% stake for ₹7,000 crore.
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“This partnership will cover all of RIL's Refining and Petrochemicals assets, including 51% of the Petroleum Retail JV,” said Mr. Ambani adding that this signifies perfect synergy between the world's largest oil producer and the world's largest integrated refinery and petrochemicals complex.
This investment by Saudi Aramco is however subject to due diligence, definitive agreements, regulatory and other customary approvals. This move will help the India's largest indebted firm to de-leverage considerably.
RIL's outstanding debt as on 30th June, 2019 stood at ₹288,243 crore ($41.8 billion) compared to cash and cash equivalents at ₹1,31,710 crore ($19.1 billion). “Market is going to heartily welcome the seminal announcement by India's largest & most respected company RIL of 20% stake sale in its oil-to-chemical (OTC) business to the world's largest oil company Saudi Aramco. It reinforces Mr. Mukesh Ambani's reputation as India's top business leader whose global vision has transformed the country's economic milieu. This is inarguably India's largest-ever FDI inflow and would help dissipate the gloomy sentiment currently pervading in the economy & stock markets," said Mr. Ajay Bodke CEO, PMS, Prabhudas Lilladher.
RIL's O2C business achieved revenue of ₹5.7 lakh crore, exports of ₹2.2 lakh crore and EBITDA of ₹52,041 crore in the last fiscal. RIL processed 68.3 million tons of crude during the year with gross refining margins (GRM) of $9.2 per barrel, maintaining a margin of $4.2 per barrel over the Singapore complex.
RIL shares on BSE closed up 0.87% up at ₹1,162 in a firm Mumbai market on Friday, valuing the company at ₹7,36,602 crore.