Two of the world's biggest conglomerates, Reliance Industries (RIL) and Aramco have decided to call off the $15 billion dollars worth deal 'in the light of changed context'. As per the proposed deal, the Saudi oil-to-chemical conglomerate, Aramco was to buy a 20% stake in oil-to-telecom behemoth, Reliance Industries. In what circumstances this deal was called off, here's an explainer.
What was the deal between the two giants?
RIL and Aramco inked a non-binding letter of intent in August 2019 for the Saudi giant to buy a 20% share in Reliance's Oil to chemical business for $15 billion. RIL's Oil to the chemical unit was anticipated to profit from the transaction in terms of increased feedstock security as it moves toward higher crude to petrochemical transition.
According to the National Company Law Tribunal, Reliance had requested to separate its Oil to Chemical business. Moreover, moving swiftly in this direction Reliance also added Saudi Aramco Chairman Yasir Al-Rumayyan to its board of directors as an independent director in October.
What may be the possible reason behind the call-off?
The Covid-19 pandemic, according to experts, played a key impact in postponing Aramco's scheduled investment because the pandemic drove crude oil prices to collapse in tandem with the consumption of petroleum goods. This hampered Aramco's efforts to purchase a 20% interest in RIL's Oil to Chemical operation.
Moreover, RIL's intentions to optimize its Jamnagar refinery to generate jet fuels and petrochemicals, as well as its announcement to become a net-zero carbon emitter by 2030, may have influenced Aramco's interest in investing in the Oil to Chemical. The Jamnagar complex, which is a significant part of Reliance's Oil to Chemical business, will be at the heart of Reliance's renewable energy and new materials business, complementing the firm's net-zero carbon emissions target, according to the company.
Besides, as per the analysts, Aramco may have been concerned that a big portion of its investment would be used to repay debts to RIL, which Mukesh Ambani's company may subsequently use to fund green energy ventures.