Saudi Aramco strengthens Indian energy ties with Reliance acquisition

Reliance shares jumped as much as 12 per cent in Mumbai on Tuesday before closing with a 9.7 per cent gain, the biggest since February 2017

Reliance Industries chairman Mukesh Ambani says the conglomerate aims to be a zero-net-debt company in 18 months. AFP 

Saudi Aramco is set to acquire a 20 per cent stake in the oil to chemicals business of India’s Reliance Industries, giving Aramco better access to a fast-growing market.

While terms of the deal are yet to be finalised, Reliance will get roughly $15 billion (Dh55 billion), including some debt adjustments for the 20 per cent stake, Panda Madhusudana Siva Prasad, Executive Director of Reliance Industries said on Monday.

He added that the two companies aim to close the deal by March 2020.

The deal will see Reliance buy up to 500,000 barrels a day of crude oil from Aramco, Mr Prasad told journalists after the company's annual general meeting (AGM), noting that this would more than double the volumes Reliance currently purchases from Aramco.

The deal ties in with Aramco's push to expand its refining and marketing footprint globally by signing new deals and boosting the capacity of its plants to secure new markets for its crude oil.

Aramco is enlarging its refining and petrochemicals business, particularly in Asia, and sees growth in chemicals as central to its downstream expansion strategy to reduce risk as oil demand slows.

"This signifies perfect synergy between the world's largest oil producer and the world's largest integrated refinery and petrochemicals complex," said Reliance Chairman Mukesh Ambani, while announcing the deal at the AGM in Mumbai on Monday.

Mr Ambani, who is Asia's richest man, said the deal would be the biggest foreign investment in the history of Reliance and also one of the largest foreign investments ever in India.

Aramco declined to comment on the Reliance tie-up on Monday which coincided with its announcement of a 12 per cent decline in half-year net profit.

Mr Ambani is cleaning up the group’s finances following years of spending on his wireless carrier, whose entry in 2016 with free calls and cheap data upended the industry and spurred a consolidation.

The $50bn ploughed into the phone venture, mostly in debt, has raised concerns among analysts including at Credit Suisse that Reliance’s ballooning borrowings could weigh on growth. Mr Ambani sought to allay those fears.

“With these initiatives, I have no doubt that your company will have one of the strongest balance sheets in the world,” he said. “We will also evaluate value unlocking options for our real estate and financial investments.” The group has spent $76bn in the past five years, he said.

Signalling an end to the spending cycle at Reliance Jio Infocomm, Mr Ambani is setting a new growth path for his group, whose bread-and-butter business has been oil refining and petrochemicals.

The company is building an e-commerce platform by leveraging its phone network and Reliance Retail to eventually take on Amazon.com and Walmart.

“This is a unique business model we are building in partnership with millions of small merchants” and stores, he said. As part of the plan, Reliance has been forming partnerships and acquiring technology assets. This month, Reliance announced plans for a joint venture with Tiffany & Co to open stores for the jeweller in India, and in May paid $82 million for the British toy-store chain Hamleys.