Mumbai: Reliance Industries Ltd (RIL) is in the process of selling a 20% stake in the company’s flagship chemicals and refining business to Saudi Aramco in a deal valued at $15 billion, as the Indian company seeks to cut its massive debt and secure an assured supply of crude oil to its refineries.

Chairman Mukesh Ambani, Asia’s richest man, announced the proposed transaction at the company’s 42nd annual general meeting on Monday, although the terms of the deal have not been finalized. The deal, which values the oil-to-chemicals (O2C) business at $75 billion, is part of a plan to make RIL a zero-debt company in the next 18 months, Ambani said in a speech at the annual meeting.

“Saudi Aramco will invest in Reliance for a 20% stake in oil-to-chemicals division at an enterprise value of $75 billion for the O2C division, which will be demerged into a separate subsidiary in the next five years," Ambani told shareholders. In addition to the stake sale to Aramco, RIL will raise $1 billion from BP Plc, which will acquire a 49% stake in RIL’s petro-retailing business for 7,000 crore, said Ambani.

The investments are subject to due diligence, definitive agreements, regulatory and other approvals, Ambani said, adding that the Saudi Aramco partnership will cover all of RIL’s refining and petrochemicals assets, including its 51% stake in the fuel retailing joint venture with BP. RIL and BP announced a joint venture to open a nationwide network of fuel retail outlets last week.

Ambani is aiming to slash RIL’s ballooning debt after spending as much as $50 billion to propel its telecom business to the top position in India within three years of starting operations, surpassing Bharti Airtel Ltd and Vodafone Idea Ltd.

As part of the proposed deal, Saudi Aramco will also supply 500,000 barrels per day of crude oil on a long-term basis to RIL’s Jamnagar refinery.

(Graphic: Sarvesh Kumar Sharma/Mint)
(Graphic: Sarvesh Kumar Sharma/Mint)

Saudi Aramco, the most profitable company in the world, controls the world’s second-largest proven crude reserves at more than 270 billion barrels, and the partnership will go a long way in insulating RIL from any future oil shocks and volatility in crude prices, said industry experts.

“This deal could not only ensure continuous crude oil supply to RIL’s twin refineries but also bring in pricing advantages and give RIL cushion from the uncertain global crude oil market," an analyst with a domestic brokerage said on condition of anonymity. “For Saudi Aramco, this deal gives a much sought-after foothold in India."

The proposed deal, once completed, is expected to significantly improve RIL’s debt profile. The company’s total financial liabilities rose to $65 billion as of 31 March from $19 billion at the end of March 2015, resulting in interest cost rising almost fourfold to $4 billion during the period.

“This programme to aggressively pursue deleveraging in businesses and emerge as a zero-debt company in the next 18 months will strengthen the consolidated balance sheet leading to strong valuation rerating of the stock," said Ajay Bodke, CEO of portfolio management services at Prabhudas Lilladher.

RIL has developed a strategy to transform the Jamnagar refinery from a producer of fuels to chemicals, moving up the value chain. The complexity index of RIL’s Jamnagar integrated refinery has been enhanced to 21.1 (from 12.7 in 2016) after the commissioning of various integrated projects and petcoke gasifiers.

Close