Why Reliance Called Off $15 Billion Deal With Aramco

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Reliance-Aramco deal: Reliance Industries and Saudi Aramco have canceled an agreement.

New Delhi:

Reliance Industries and Saudi Aramco have canceled a deal to buy a stake in the state-owned oil giant’s oil-to-chemical business due to concerns over valuations, sources close to the matter said.

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Discussions on how much Reliance’s oil-to-chemicals (O2C) business should cost have broken down as the world seeks to move away from fossil fuels and reduce emissions, they said.

Instead, Reliance will now focus on signing multiple contracts with companies to produce specialty chemicals for higher margins, a source said.

Aramco, the world’s top oil exporter, has signed a non-binding agreement to buy a 20% stake in Reliance’s O2C business for $ 15 billion in 2019. Last week, the companies announced they would re-evaluate the deal, ending two years of negotiations

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The collapse of the deal reflects the global energy landscape as oil and gas companies move from fossil fuels to renewables. Refining and valuation of petrochemical resources have declined, particularly since the recent COP26 climate talks in Glasgow, a second source involved in the negotiations said.

Despite this, Reliance was stuck with a $ 75 billion valuation for the O2C business created in 2019, he said.

“Assessments by consultants have shown a significant reduction in valuations … less than 10%,” he added.

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“Reliance highlighted the difficulty of separating Jamnagar from the clean energy business as the reason for not completing the transaction, although we suspect that business alignment and valuation were also key factors,” Bernstein wrote in a recent note, citing Reliance’s huge refining complex. Gujarat.

A second source familiar with proper perseverance said the process had stopped at an “early stage assessment”. Reliance Goldman sought Shakespeare’s advice and Aramco Citigroup’s help, sources said. The banks declined to comment.

Jefferies reduced the value of its Reliance energy business from $ 80 billion to $ 70 billion, while Kotak Institutional Equities reduced the enterprise value of its O2C business to $ 61 billion. Bernstein said that business was worth $ 69 billion.

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Without confirming whether the deal has been canceled, Saudi Aramco said it has a long-standing relationship with Reliance and will look for investment opportunities in India.

Reliance said it would continue to be a preferred partner of Saudi Aramco for investment in the Indian private sector and would partner with Saudi Aramco and SABIC to invest in Saudi Arabia. Reliance is the largest Indian buyer of Saudi oil.

Strategy change

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Reliance, which aims to have net carbon zero by 2035, plans to switch its O2C business to cleaner feedstock and energy and expand to solar power, batteries, electrolyzers to produce hydrogen and hydrogen fuel cells.

“The full value of this integration is best realized by rebuilding existing O2C resources, as well as by evaluating multiple joint ventures and partnerships in a particular chemical downstream venture,” said a source familiar with the matter.

Demand for specialized chemicals – used in industries such as agrochemicals, dyes, dyes, fast moving consumer goods, pharmaceuticals, fuel additives, polymers and textiles – continues to grow as India’s economy expands. These chemicals provide better margins for companies than conventional fuels as demand for petrol and diesel is expected to decline with more electric vehicles and renewable energy.

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India’s specialty chemical sector, which is expected to grow from 32 32 billion in 2019 to an estimated বিল 64 billion by 2025, is expected to help boost exports as global companies seek to deregulate their supply chains dependent on China, a government report said.

The group, controlled by billionaire 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 the sovereign asset fund ADQ.

Saudi Aramco is also focusing on hydrogen and renewables as it moves to Net-Zero by 2050.

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(This story was not edited by NDTV staff and was automatically generated from a syndicated feed.)

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