Saudi Aramco To Buy 20% In Reliance’s Oil, Chemicals Business At $75 Billion Enterprise Value
The deal will include 51 percent stake in the joint venture between RIL and BP Plc, Ambani added.
Saudi Arabian Oil Co. will buy a fifth of Reliance Industries Ltd.’s refining and petrochemicals business at an enterprise value of $75 billion, Reliance Chairman and Managing Director Mukesh Ambani said.
The transaction covers all of Reliance Industries’ refining and petrochemical operations, including the Jamnagar refinery, Ambani told shareholders at the company’s 42nd annual general meeting in Mumbai today. The world’s biggest crude exporter will also supply the refinery with 5,00,000 barrels of oil a day on a long-term basis.
The deal will also include 51 percent stake in the retail fuel joint venture between RIL and BP Plc, Ambani, who’s Asia’s richest individual, said. The deal will be subject to various regulations and approvals.
Valuation
Ambani did not disclose the exact amount that Aramco will invest in Reliance’s unit. But the enterprise value for Saudi Aramco’s investment is largely in line with analysts’ estimates, according to data compiled by BloombergQuint.
RIL’s refining and petrochemical business is valued at nearly Rs 5,11,928 crore compared with the enterprise value of Rs 5,17,500 crore ($75 billion), according to the average of 12 analyst estimates.
The investment will help the oil-to-telecom conglomerate deleverage its balance sheet. RIL’s total debt has increased due to its rising capital expenditure and investments. In 2018-19, RIL’s capital expenditure jumped 67 percent to Rs 1,32,445 crore—the highest in at least 11 years. More than half of this was spent on the telecom business, while the remaining amount was invested in its refining, petrochemical, retail and other arms.
In the ongoing financial year, the company has borrowings worth Rs 80,621 crore up for repayment, which is nearly 1.7 times the average cash flow from operations generated by the company in the last five financial years. If the company had failed to generate enough cash to repay its debt, then it would either have to refinance its debt or sell stake in assets to repay the debt. Its total borrowings that are up for repayment in the year ending March 2020 is seven percent higher over last year.
Rising debt has been an overhang on RIL. Since the onset of Reliance Jio, the company’s consolidated debt has increased due to rising capital expenditure. However, RIL has been able to maintain its leverage ratio due to higher contribution from its consumer and petrochemical businesses. Reliance Industries had earlier announced the monetisation of its tower and fiber assets. However, even a successful demerger couldn’t lower RIL’s debt. Recently, the company announced that Brookfield along with other investors will be investing in Tower Infrastructure Trust, which could reduce RIL’s debt by Rs 12,105 crore.