RIL-Aramco mega deal in India faces valuation hurdles

REUTERS/Amit Dave

Differences over the valuation of the refining and petrochemicals business of Reliance Industries Ltd (RIL) is likely to prolong a potential mega deal between India’s largest private sector company and the world’s top crude oil producer, Saudi Arabian Oil Co. (Aramco), said two people, requesting anonymity.

The deal was announced last August by RIL chairman and managing director Mukesh Ambani, wherein Aramco was to pick up a 20% stake in the company’s oil and chemicals business for $15 billion, at an enterprise value of $75 billion.

However, an agreement is yet to be signed between the two companies. Last month, Ambani had informed shareholders at the annual general meeting that due to the unforeseen circumstances in the energy market, the Aramco deal has not progressed as per the original timeline.

On Sunday, Aramco president and chief executive Amin Nasser said work on the RIL deal is on and they will update shareholders in due course.

“The impact of crude oil prices on Saudi Aramco’s balance sheet is visible. It wants a market to place its crude, but it is not desperate. And, so is not RIL to sell a stake. So, both companies are looking at a commercial deal which is a win-win for both,” said the first official cited above.

While for Aramco, the drop in oil price has impacted its balance sheet and valuation, RIL, having raised 2.12 trillion through its combined investments in Jio Platforms, a rights issue and investment by BP in its fuel retail business, is not as desperate to sell a stake.

According to Bernstein Research, RIL’s last year’s valuation of $75 billion could have fallen to a gross valuation of nearly $57 billion, as on 16 July. Crude prices have fallen 23.44% so far since 12 August 2019, when the RIL-Aramco deal was first announced.

An RIL spoksperson did not immediately reply to an email query on Wednesday seeking comments.

Kotak Institutional Equities has estimated RIL’s petrochemicals business to post earnings before interest, taxes, depreciation and amortization (Ebitda) of 26,000 crore in FY21, declining from 30,900 crore in FY20, and 37,900 crore in FY19. Ebitda for its refining and marketing business is estimated at 18,600 crore in FY21 against 24,500 crore in FY20 and 26,100 crore in FY19.

The second person cited above said another factor that is likely to delay the deal is the availability of another asset in the market for Aramco to purchase—that of state-run Bharat Petroleum Corp. Ltd (BPCL).

“Saudi Aramco is keen on the deal with RIL. Though BPCL’s stake sale by the government is also an attractive option for the company, it is currently cautious on its investments, given the present world economic scenario,” he added.

Aramco said in a press release on Sunday that its net income plunged to $23.2 billion in the first six months of 2020, from $46.9 billion in the year-ago. It reported a 73.4% fall in its second-quarter net profit, and said it expects capital expenditure for 2020 to be at the lower end of the $25 billion to $30 billion range.

“Strong headwinds from reduced demand and lower oil prices are reflected in our second-quarter results,” Nasser said on Sunday.

The article was first published on livemint.com

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.