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Business deals

Saudi Aramco to acquire 20% stake in India's Reliance division

Middle East oil and gas major to pay $15bn to expand footprint in energy-thirsty Asia

An oil tank at Saudi Aramco's Ras Tanura oil refinery and terminal in Saudi Arabia. The company supplies crude oil to Reliance Industries' refinery in India.   © Reuters

MUMBAI -- Oil and gas major Saudi Aramco is to acquire a 20% stake in the oil and chemicals business of Mukesh Ambani-led Reliance Industries, in a deal that the Indian petrochemical and retail billionaire described as one of the largest inbound foreign direct investments to date.

The deal gives the division an enterprise value of $75 billion, according to a statement from Reliance Industries.

The investment is part of Saudi Arabia's strategy of expanding aggressively, especially in Asia, and follows a separate agreement with Indian government-run oil refiners in April to build a $44 billion integrated refinery and petrochemical complex in the state of Maharashtra.

For Reliance Industries, the deal is an attempt to pare back debt and free up cash to invest in new consumer businesses.

Last month, Reliance Industries announced that oil group BP was taking a 49% stake in a petroleum retail joint venture for 70 billion rupees ($1 billion).

"I am truly delighted to welcome Saudi Aramco, one of the largest business enterprises in the world, as a potential investor in our oil to chemicals division," Reliance Industries chairman and managing director Ambani told shareholders at the company's annual general meeting on Monday. "We have a long-standing crude oil relationship with Saudi Aramco and we would be happy to see this further strengthened with this investment."

Reliance Industries Chairman and Managing Director Mukesh Ambani.   © Reuters

Saudi Aramco already supplies crude oil to Reliance Industries' refinery in the western Indian city of Jamnagar. The company says that to date it has supplied approximately 2 billion barrels of crude oil for processing at Jamnagar.

"The proposed investment would result in Saudi Aramco supplying 500 KBPD (thousand barrels per day) of Arabian crude oil to the Jamnagar refinery on a long-term basis," Reliance Industries said. "Under the nonbinding letter of interest, the proposed investment is subject to due diligence and the executed definitive agreement will be subject to regulatory and other customary approvals."

Saudi Aramco's investment is part of Saudi Crown Prince Mohammad bin Salman's plans to boost the Saudi economy. Last year, Saudi Aramco president and CEO Amin Nasser said in an interview with the Nikkei in Tokyo that the company was looking at making additional investments in China, which it considers to be a very important destination.

The growing Asian region is also an important market for Aramco. The International Energy Agency said in September that it expected energy consumption in Asia outside of Australia, Japan and South Korea to increase by 51% between 2015 and 2040, which it said was "the largest regional growth in the world."

In April, Saudi Aramco bought a minority stake in the oil refining unit of South Korean refining company Hyundai Oilbank.

Reliance Industries, meanwhile, is looking to fuel new businesses in areas including retail and telecommunications, where it is taking on the likes of Amazon, Walmart, Bharti Airtel and Vodafone Idea.

Ambani has also pledged to be a zero-debt company in one-and-a-half years, from net debt of 1.54 trillion rupees as of March 2019.

Gagan Dixit, vice-president of local brokerage house Elara Capital, said the deal would provide Reliance Industries with much-needed capital for the planned expansion of its oil-to-chemicals division over the next decade. In addition, he said in a statement, "it's a positive development that the 1.05 trillion rupees available from Saudi Aramco, and the 0.8-0.9 billion rupees per annum operating cash flow, will help deleverage Reliance Industries within two years."

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