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Sunday, November 21, 2021

$15 billion Reliance-Aramco deal cancelled, valuations to be renewed; many questions raised

Billionaire industrialist Mukesh Ambani's Reliance Industries Ltd (RIL) has announced a revaluation of a proposed $15 billion deal to sell 20 per cent stake in its oil refinery and petrochemicals business to Saudi Arabian firm Saudi Aramco. Prior to this announcement made late Friday night, Reliance Industries has missed the self-determined deadline twice for this deal.
Reliance Industries on Friday said both the companies have agreed to re-evaluate the proposed investment in view of the Indian firm's entry into new energy business. The news of stake sale talks was first officially revealed in August 2019. Meanwhile, Reliance entered the new energy business by investing $10 billion in alternative energy in three years. In view of this the deal is being re-evaluated.

Ambani had announced talks to sell 20 per cent stake in the O2C business at the company's annual general meeting of shareholders in August 2019. He had said at the time that the deal would be completed by March 2020, though it missed the deadline. The company said that this happened due to restrictions imposed due to the Kovid-19 epidemic.

Ambani also said at the AGM this year that the deal would be completed by the end of the year. Along with this, he also announced big investments in the renewable energy sector. Although the new deadline for the Aramco deal and entry into the new energy business were announced simultaneously, it is not clear what changed since June, necessitating a re-evaluation. Reliance has also decided to withdraw the application made before the National Company Law Tribunal (NCLT) for demerger of O2C business from the company. The new energy business is under a separate subsidiary of RIL. As such, it is not clear how this impacted negotiations for stake sale of the O2C business.

It is also not clear why the demerger application before the NCLT was withdrawn if Aramco still wants to take stake in the O2C business, and the deal may be completed in future. It is also not clear whether Aramco is also interested in the new energy business, and hence the need to work out a new deal. An email sent to the company's spokesperson in this regard did not elicit any response till the writing of the news.

In a statement on Friday night, RIL said, "Due to the evolving nature of the company's business portfolio, Reliance and Saudi Aramco have mutually decided that O2C (from oil to chemical) in view of the changed context for both the parties." It would be beneficial to re-evaluate the proposed investment in the business. The Indian company said that Aramco's proposed investment was only for oil refining and petrochemicals business, but now Reliance is also in the green energy space, due to which the deal needs to be reworked. However, the company has not given any possible timeline for the deal. The statement said that during the last two years, the teams of both the companies have made significant efforts in the process of investigation despite the restrictions imposed due to Kovid-19.