Saudi Aramco Buying Stake in India’s Reliance Industries
Saudi Aramco intends to buy stake in Reliance, reports decline in revenues
Saudi Aramco plans to invest in Reliance Industries, the Indian conglomerate said Monday. Saudi Arabia’s energy giant is diversifying its business, with low oil prices dropping its first-half profits by 12%. In preparation for what could be the world’s largest initial public offering (IPO), state-owned Saudi Aramco began publishing its results this year and also began issuing international bonds. World’s largest oil producer plans to hold IPO postponed last year by 2020-2021.
Saudi Aramco intends to acquire 20% stake in Reliance’s petrochemical business, becoming one of the largest foreign investors in India.
Although the terms of the deal have yet to be determined, Reliance will receive approximately $ 15 billion for the 20% stake. Reliance Industries CEO Prasad said Monday that both companies intend to close the deal by March 2020..
Saudi Aramco is expanding its refining and chemical processing activities, gaining a global position, signing new agreements and expanding opportunities to secure new markets for its oil and reducing the risk of any drop in oil demand.
For many years Saudi Aramco has been a regular supplier of oil to Indian refineries under long-term oil contracts..
And while it held stakes in refineries or warehouse assets in other key Asian markets such as China, Japan, and South Korea, and in the United States, where it owns Motiva, the largest refinery in the United States, it did not gain the same access to India to the fast growing fuel and oil products market.
Reliance representatives in Prasad on Monday to conclude an agreement that Reliance will purchase up to 500,000 barrels of crude oil per day from Saudi Aramco, more than doubling the current volumes that Reliance is buying now..
A source familiar with the negotiations said the potential deal would help Saudi Aramco increase Reliance’s crude supply by more than 50%.
«This means a perfect synergy between the world’s largest oil producer and the world’s largest integrated refinery and petrochemical complex.», – Reliance chairman Mukesh Ambani said on Monday announcing the Mumbai deal.
Ambani, who is the richest man in Asia, said the deal would be the largest foreign investment in Reliance’s history, as well as one of the largest foreign investments in India..
Saudi Aramco, which declined to comment on the India deal, reported net income of $ 46.9 billion in the first half of 2019, up from $ 53 billion in the same period last year. Despite declining profits, Saudi Aramco remains the most profitable company in the world.
«Despite lower oil prices in the first half of 2019, we continued to deliver strong margins and strong free cash flow, backed by our robust operating performance, cost management and fiscal discipline.», – said CEO Amin Nasser.
Saudi Aramco is ramping up investment in refining and petrochemicals with the goal of nearly tripling its chemical production to 34 million tonnes per year by 2030 and expanding its global refining capacity to 8-10 million barrels per day from over 5 million barrels per day. ,
Over the past two years, the company has also been involved in most of the kingdom’s major deals, announcing at least $ 50 billion in investments in Saudi Arabia, Asia and the United States..
Reliance’s deal with Saudi Aramco will cover all of Reliance’s refining and petrochemical assets, as well as its majority stake in a joint venture retailing petroleum products.
Last week, British oil company BP to set up a joint venture retail fuel company with Reliance, the Indian company will own 51% of the shares.
The Saudi Aramco deals show how Riyadh wants to be the last oil producer when demand slows down in the future, and with a production cost of around $ 4 per barrel, Aramco has few competitors..
The company’s total revenues for the half-year, including other sales revenues, amounted to $ 163.88 billion against $ 167.68 billion a year earlier. Free cash flow up 6.7% to $ 38 billion.
The drop in revenues was mainly due to a 4% drop in the average realized price of crude oil by 4% to $ 66 from $ 69 per barrel, as well as an increase in purchasing, production and production costs, as well as depreciation and amortization costs..
The drop was partially offset by a $ 2.62 billion cut in income taxes, the company said..
Saudi Aramco said it will maintain its position as the world’s largest producer of crude oil and will continue to increase gas production and strengthen its financial position.
«Our financial performance is strong and we will continue to invest in future growth», – said CEO Nasser.
Saudi Aramco’s planned IPO is central to Saudi Arabia’s economic transformation efforts to attract foreign investment and diversify from oil.
Work on the IPO was halted in 2018 when Saudi Aramco shifted its focus to acquiring a 70% stake in petrochemical producer Saudi Basic Industries Corp..
Saudi Aramco also paid the government $ 46.4 billion in dividends, including a $ 20 billion special dividend, up from $ 32 billion a year earlier..
This reflects the heavy dependence of Saudi Arabia on the oil company to finance the budgetary needs of the kingdom, as well as the royal family, which is accustomed to indulging in nothing..