Mukesh Ambani's Reliance Industries and major oil producer Saudi Aramco have signed a nonbinding letter of intent under which Saudi Aramco will buy a 20 percent stake in RIL's oil-to-chemical business at an enterprise value of $75 billion.
"In the largest foreign investment in India, Saudi Aramco and Reliance Industries have agreed to form a long-term partnership," said Ambani at RIL's 42nd annual general meeting on Monday.
The partnership will cover all of Reliance's refining and petrochemicals assets, Ambani said. "This signifies perfect synergy between the world's largest oil producer and the world's largest integrated refinery and petrochemicals complex," he added.
This implies a total consideration of $16 billion for the entire deal. The move will definitely deleverage the balance sheet of the company but this will also reduce the cash flows of the company as these two segments are the cash cows of the company and contribute 60 percent of company’s FY20 earnings per share.
The company has been sitting on a huge pile of debt. The gross debt stands at Rs 2.8 lakh crore, the net debt is Rs 1.8 lakh crore. This deal could reduce the debt of the company by over 30 percent after considering the reduction of INvIT debt. This could impact the EPS by 17-18 percent.
Saudi Aramco will supply 500,00 barrels of crude oil a day to RIL's Jamnagar refinery, he said. RIL’s Jamnagar refinery is the largest and most complex refinery in the world, with deep integration of refining and petrochemical activities across multiple manufacturing facilities.
Under the non-binding LOI, the proposed investment is subject to due diligence, and the executed definitive agreement will be subject to regulatory and other customary approvals. The parties will make an announcement once a definitive agreement is executed.
Earlier this month, RIL and UK's BP Plc have formed a new fuel retail joint venture. The new joint venture will also include RIL's aviation turbine fuel (ATF) business which currently operates at over 30 airports across India. RIL will hold 51 percent and BP will hold 49 percent in the new JV.
First Published: IST