Reliance and Saudi Aramco agree to re-evaluate $15bn oil-to-chemicals investment proposal

Reliance Industries, India’s largest private petrochemicals company controlled by billionaire Mukesh Ambani, and Saudi Aramco agreed to re-evaluate a previous non-binding agreement to sell a 20 per cent stake in the Indian company's oil-to-chemicals business as it shifts strategy to focus on renewable energy.

"Due to evolving nature of Reliance’s business portfolio, Reliance and Saudi Aramco have mutually determined that it would be beneficial for both parties to re-evaluate the proposed investment in O2C business in light of the changed context," Reliance said in a statement.

India’s largest private sector company said it had also withdrawn its application with the country's National Company Law Tribunal to segregate its O2C business. This was intended as part of the potential 20 per cent stake sale to Saudi Aramco.

At Reliance's annual general meeting in June, Mr Ambani unveiled an ambitious push into clean energy that earmarks 750 billion rupees ($10.1bn) of investment over three years to help transform the company, which still gets nearly 60 per cent of its revenue from fossil-fuel related businesses.

“The world is entering a new energy era, which is going to be highly disruptive,” said Mr Ambani, 64. “The age of fossil fuels, which powered economic growth globally for nearly three centuries, cannot continue much longer. The huge quantities of carbon it has emitted into the environment have endangered life on Earth."

"Our world has only one option, rapid transition to a new era of green, clean and renewable energy," Mr Ambani said.

“I envision a future when our country will be transformed from a large importer of fossil energy to a large exporter of clean solar energy solutions.”

Reliance has a 15-year strategy to become net-carbon zero by 2035.

The deep engagement over the past two years has given both Reliance and Saudi Aramco a greater understanding of each other, providing a platform for broader areas of cooperation

Reliance Industries

Reliance and Aramco “over the past two years ... made significant efforts in the process of due diligence, despite Covid-19 restrictions”, Reliance said.

“The deep engagement over the past two years has given both Reliance and Saudi Aramco a greater understanding of each other, providing a platform for broader areas of cooperation. Saudi Aramco and Reliance are deeply committed to creating a win-win partnership and will make future disclosures as appropriate.”

RIL said it would continue to be Saudi Aramco’s preferred partner for investments in India’s private sector and will collaborate with Saudi Aramco and SABIC for investments in Saudi Arabia.

Reliance Industries and Saudi Aramco had signed a non-binding letter of intent in August 2019 for a potential 20 per cent stake acquisition by the world’s biggest crude exporter in the O2C business of Reliance for an enterprise value of $75 billion.

In July 2020, Mr Ambani said the transaction had been delayed “due to unforeseen circumstances in the energy market and the Covid-19 situation”. RIL also announced a plan to create a separate entity for the business in September 2020.

As recently as June this year, Reliance said it expected to finalise the investment deal with Aramco and appointed the Saudi Arabia company's chairman Yasir Al-Rumayyan as an independent director on its board.

Meanwhile, Reliance Industries announced it will develop one of the world’s largest integrated renewable energy manufacturing facilities in the western Indian state of Gujarat as it unveiled plans for new energy and materials businesses.

The Dhirubhai Ambani green energy giga complex at Jamnagar in Gujarat will comprise four giga factories to produce solar modules, green hydrogen, fuel cells and to build a battery grid to store electricity, according to Reliance's statement.

The value of the renewable energy manufacturing unit or when it would be ready for operations was not disclosed.

“Jamnagar, which accounts for a major part of the company’s oil to chemicals assets, is envisaged to be the centre for Reliance’s new businesses of renewable energy and new materials, supporting India’s net-zero commitment,” Reliance said.

India set a target of becoming carbon neutral by 2070, Prime Minister Narendra Modi told the Cop26 climate change summit in Glasgow. By 2030, the country will expand its clean energy sector, obtain half its power from renewable resources and cut carbon emissions by one billion tonnes, he said.

One of Reliance’s “giga factories” will manufacture solar modules, the second involves large-scale grid batteries to store electricity and the third will build and install electrolysers for separating green hydrogen from water. The fourth factory would be for fuel cells, which use oxygen from the air and hydrogen to generate electricity.

To pivot to green energy, Reliance Industries bought a German maker of photovoltaic solar wafers and signed a deal with a Danish company to manufacture hydrogen electrolysers in India.

India’s most valuable company raised more than $30bn selling stakes in its technology and retail units, and through a sale of shares to existing investors. Reliance brought on board Silicon Valley giants such as Google and Facebook to help grow its digital and e-commerce footprint in a $1 trillion retail market of more than 1.3 billion people.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

Fireball

Moscow claimed it hit the largest military fuel storage facility in Ukraine, triggering a huge fireball at the site.

A plume of black smoke rose from a fuel storage facility in the village of Kalynivka outside Kyiv on Friday after Russia said it had destroyed the military site with Kalibr cruise missiles.

"On the evening of March 24, Kalibr high-precision sea-based cruise missiles attacked a fuel base in the village of Kalynivka near Kyiv," the Russian defence ministry said in a statement.

Ukraine confirmed the strike, saying the village some 40 kilometres south-west of Kyiv was targeted.

If you go

The flights
Etihad (etihad.com) flies from Abu Dhabi to Luang Prabang via Bangkok, with a return flight from Chiang Rai via Bangkok for about Dh3,000, including taxes. Emirates and Thai Airways cover the same route, also via Bangkok in both directions, from about Dh2,700.
The cruise
The Gypsy by Mekong Kingdoms has two cruising options: a three-night, four-day trip upstream cruise or a two-night, three-day downstream journey, from US$5,940 (Dh21,814), including meals, selected drinks, excursions and transfers.
The hotels
Accommodation is available in Luang Prabang at the Avani, from $290 (Dh1,065) per night, and at Anantara Golden Triangle Elephant Camp and Resort from $1,080 (Dh3,967) per night, including meals, an activity and transfers.