The Reliance Saudi Aramco deal news did not do well for Reliance Industries stock on November 22. The much-awaited deal between Reliance Industries (RIL) and oil giant Saudi Aramco worth $15 billion has been put on hold leading to a minor setback for the company led by Asia’s richest man, Mukesh Ambani. The share price of Reliance fell around 4% on November 22, 2021.

However, from a business perspective, industry observers say it is not likely to affect business much. As per the Reliance Aramco deal that was announced in August 2019, RIL was to sell an equity stake in its oil-to-chemicals division valued at $75 billion to Aramco. The announcement had boosted investor sentiment, and the stock price of RIL has nearly doubled ever since.

In a statement, RIL said that both the companies have now mutually decided to step back and re-evaluate the investment proposal in light of changing business avenues and the evolving nature of Reliance’s business portfolio in the context of Reliance Aramco deal News.

The deal was supposed to be inked by March 2020. Both the companies peg the pandemic to be a significant deterrent in signing the agreement.

What is the Reliance-Aramco deal?

In August 2019, RIL and Saudi Aramco signed a non-binding letter of intent where RIL would sell 20% stake in the company’s Oil-to-chemical (O2C) business to Aramco at an enterprise value of $75 billion. The company had applied to the National Company Law Tribunal to separate its O2C business, a proposal that has now been withdrawn.

The company also appointed Aramco’s Chairman Yasir Al-Rumayyan as an independent director on its board of members this year. 

If the Reliance Aramco deal went through, a stake in RIL would have opened the door for Aramco to expand its business in India – one of the fastest-growing fuel markets in the world. Aramco has a stake in China’s largest O2C project at Zhejiang, where they have an agreement of long-term supply of crude oil and a plan for a chain of retail outlets. It had similar plans in India with RIL as a partner.

Aramco representatives said that they see tremendous growth opportunities in the Subcontinent over the long term. This is especially important in the light of the fuel consumption in India scaling back to pre-Covid levels due to Covid cases plummeting and a major reboot in the economy.

Things you need to know

Apart from the deal not going through, here are a couple of things you need to know about the Reliance Aramco News and what may have impacted.

The Covid impact

At the peak of the Coronavirus pandemic, crude oil prices took a sharp dive amid slow global demand for petrochemical products. This led to a delay in materializing the deal on time with an overall lull in the market.

RIL’s beyond-O2C ambitions

Reliance is scaling its offerings and exploring new materials instead of confining its business to O2C products. 

RIL’s zero carbon emission plans

Reliance announced that it aims at becoming a net-zero carbon emitter by 2030 at the COP26. To achieve this, the company will optimize its Jamnagar refinery (its major oil refinery) to produce jet fuel and other petrochemicals. RIL’s Jamnagar unit will be integral to its renewable energy business and support its net-zero carbon emission aim. This will include installing electrolyzer factories, a fuel cell factory, an advanced energy storage factory, and an integrated solar photovoltaic module factory at an added cost of Rs 60,000 crore.

For this, RIL’s unit called Reliance New Energy Solar Ltd. has acquired a 100% stake in REC solar holdings and a 40% stake in Sterling & Wilson Solar Ltd. The company has also invested $50 million in Ambri Inc. for long-duration energy storage systems and has signed a deal with Stiesdal Fuel Technologies for hydrogen electrolyzers. 

Reliance’s net debt-free status

Reliance in their latest AGM declared that they have significantly reduced their net debts and is on the path to becoming a zero-debt company. This is facilitated by the Rs 2.6 lakh crores that RIL raised from selling some stake in Jio Platforms Ltd and Reliance Retail Ventures Ltd to global investors including Facebook and Google via a rights issue. 

RIL shares nosedive 

The Reliance Saudi Aramco deal news announcement led to a sharp dive in the share price of RIL. The stock erased over Rs 66,000 crore in market value on Monday. Reliance’s share price took a hit of over 4.5% on November 22.

Other things to know

Saudi Aramco said that it is eyeing new investment in India after the Reliance Saudi Aramco news came out.. The company says that it will continue to look for investment opportunities in India for the long term.

According to a few reports, Reliance is expected to generate Rs 2.5 lakh crore in operating income in the next two years which would be sufficient to undertake future investments and reduce debt, according to Deven Choksey of KR Choksey Investment Managers.