RIL-Aramco deal likely if oil falls to $65
New Delhi: A fall in crude oil price and Aramco's $75 billion annual dividend commitment may have delayed Saudi company picking a stake in Reliance Industries Ltd's oil-to-chemical unit (O2C), research firm Jefferies said.
Richest Indian Mukesh Ambani had in August 2019 announced talks for the sale of a 20 per cent stake in the O2C business, which comprises its twin oil refineries at Jamnagar in Gujarat and petrochemical assets, to the world's largest oil exporter.
The deal was to conclude by March 2020 but has been delayed for reasons not disclosed by either company.
In a report, Jefferies said Saudi Aramco recently reiterated its focus on downstream investments in India and China and it could replicate its downstream investment model in China by investment in RIL's O2C business.
"A fall in crude price and Aramco's $75 billion annual dividend commitment have delayed the RIL O2C stake buy in our view," it said. "Crude at $65 per barrel is sufficient for the transaction in our view."
RIL would benefit from lower leverage and a lower carbon footprint.
Earlier this week, Morgan Stanley in a report stated that Saudi Aramco's 2020 earnings conference call indicated that the firm is "still in discussion with Reliance to evaluate existing opportunities as potential partners, regarding the non-binding MoU signed with Reliance for its O2C
business."
Besides refineries and petrochemical plants, the O2C business also comprises a 51 per cent stake in the fuel retailing business. It, however, does not include the upstream oil and gas producing assets such as the flagging KG-D6 block in the Bay of Bengal.
Reliance had in 2019 put $75 billion as the value of O2C business after signing a non-binding letter of intent with Saudi Aramco.