NEW DELHI/DUBAI, Nov 25 (Reuters) - Reliance Industries
and Saudi Aramco have called off a deal for
the state oil giant to buy a stake in the oil-to-chemicals
business of the Indian conglomerate due to valuation concerns,
sources with knowledge of the matter said.
Talks broke down over how much Reliance's oil-to-chemicals
(O2C) business should be valued as the world seeks to move away
from fossil fuels and reduce emissions, they said.
Instead, Reliance will now focus on signing multiple deals
with companies to produce specialty chemicals for higher
margins, one of the sources said.
Aramco, the world's top oil exporter, 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 https://www.reuters.com/business/energy/reliance-aramco-re-evaluate-stake-sale-oil-to-chemicals-arm-2021-11-19,
ending two years of negotiations.
The collapse of the deal reflects the changing global energy
landscape as oil and gas companies shift away from fossil fuel
to renewables. Valuations of refining and petrochemical assets
have gone down especially after the recent COP26 climate talks
in Glasgow, a second source involved in the deal discussions
Despite this, Reliance had stuck to the $75 billion
valuation for the O2C business made in 2019, he said.
"Evaluation by consultants showed a significant cut in
valuation...more than a 10% cut," he added.
"Reliance has highlighted the difficulty of separating
Jamnagar from the clean energy business as a reason to not
complete the transaction, although we suspect business alignment
and valuation were also key reasons," Bernstein wrote in a
recent note, referring to Reliance's huge refining complex in
A second source familiar with due diligence said the
procedure was halted in "early stage assessment".
Reliance was seeking advice from Goldman Sachs and Aramco
was seeking help from Citigroup, sources said. The banks
declined to comment.
Jefferies has cut its valuation of Reliance's energy
business to $70 billion from $80 billion, while Kotak
Institutional Equities has cut the enterprise value of O2C
business to $61 billion. Bernstein values that business at $69
Without confirming whether the deal has been called off,
Saudi Aramco said it has a longstanding relationship with
Reliance and will continue to look for investment opportunities
Reliance said it would continue to be Saudi Aramco's
preferred partner for investments in the private sector in India
and will collaborate with Saudi Aramco & SABIC for investments
in Saudi Arabia. Reliance is the biggest Indian buyer of Saudi
CHANGE OF STRATEGY
Reliance, which aims to become net carbon zero by 2035,
plans to switch to cleaner feedstock and energy at its O2C
business and expand in solar power, batteries, electrolyzers to
produce hydrogen and hydrogen fuel cells.
"The full value of this integration is also best extracted
by repurposing existing O2C assets as well as evaluating
multiple joint venture and partnerships in downstream ventures
in specialty chemicals," a source familiar with the matter said.
Demand for specialty chemicals - used in industries such as
agrochemical, colourants, dyes, fast-moving consumer goods,
pharmaceuticals, fuel additives, polymers, and textiles - is set
to rise in India as its economy expands. These chemicals also
yield better margins for companies than conventional fuels as
demand for gasoline and diesel are expected to fall with more
electric vehicles and renewable energy.
The Indian specialty chemicals sector is expected to
increase from $32 billion in 2019 to an estimated $64 billion by
2025 helping boost exports as globally companies wants to
de-risk their supply chains dependent on China, according to a
The Indian conglomerate, controlled by billionaire Mukesh
Ambani, has already announced a $2 billion investment in the
UAE's TA'ZIZ chemical joint venture https://www.reuters.com/world/middle-east/indias-reliance-adnoc-join-forces-chemical-project-2021-06-29
between Abu Dhabi National Oil Co. and sovereign wealth fund
Saudi Aramco has also turned its focus to hydrogen and
renewables as it moves to net-zero by 2050.
(Reporting by Nidhi Verma in New Delhi and Saeed Azhar in
Dubai; Editing by Florence Tan and Kim Coghill)