Reliance joins Chinese investors in Saudi Aramco stake chase

The race to acquire a slice of Saudi Arabia's Aramco is about to hot up with Mukesh Ambani reportedly mulling a stake in the oil giant, even as major Chinese investors eye a slice too

Reliance joins Chinese investors in Saudi Aramco stake chase
Saudi Aramco, the Saudi Arabian oil giant, is trying to attract India's richest man – Mukesh Ambani – as well as major Chinese investors in its next stake sale. Photo: Company website. 

(ATF) As Saudi Arabia’s Aramco prepares to sell another slice of its business to international investors, India’s richest man Mukesh Ambani’s Reliance Industries is joining the fray for a slice of the valuable oil company along with a bunch of Chinese investors.

The UK’s Financial Times (FT) reported on Wednesday that Saudi Arabia has held talks with Reliance about a cash and share deal for a stake in the Indian company’s refining and petrochemicals arm, as the world’s largest crude oil exporter seeks to deepen ties with the fast-growing energy consumer.

Aramco is weighing up paying for the stake with its shares initially and then staggered cash payments over several years, although the proportion of shares versus cash was still up for debate and terms are yet to be finalised.

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The deal, if completed, would mark the first time Saudi Aramco had ever paid for a transaction using shares, and allow Reliance to grab a slice of the world's largest oil exporter, as well as gaining an assured feedstock supplier.

Saudi Arabia's Crown Prince Mohammed bin Salman hinted late on Tuesday at talks to sell a minority stake in the Saudi national oil company to a foreign investor.

"I don't want to give any promises but there's a discussion for the acquisition of 1 per cent," he said in a television interview.

Given Aramco's current market capitalisation – and that it is still the world's most valuable oil company – a stake of 1% would equate to around $19 billion.

While the Prince did not give details of the deal, or the investors involved, according to a Reuters report on Thursday, Saudi Aramco is also in talks with major Chinese investors over selling a slice.

CHINA INTEREST

Sovereign wealth fund China Investment Corporation (CIC) was among those that could invest, Reuters reported, adding that Aramco was talking to Chinese national oil companies too, as well as other Chinese investors.

In the interview, the Prince also said that Riyadh was strengthening its relationships with China, India and Russia, though the United States remained a strategic partner despite some differences with the Biden administration, which has taken a tougher stance on Saudi Arabia.

"China has said Saudi Arabia is a strategic partner, India has said Saudi Arabia is a strategic partner and Russia has also said Saudi Arabia is a strategic partner," the prince said.

The Saudi government sold more than 1.7% of Aramco in a 2019 initial public offering (IPO) that raised a record $29.4 billion, triggering more IPOs in the kingdom, which is also seeking to deepen its capital markets to reduce its reliance on oil.

SALE AMBITIONS

But the kingdom has always harboured ambitions for a larger share sale that includes foreign investors and, initially, the government wanted to list Aramco on the Saudi bourse and an international stock exchange.

But that plan was shelved due to the crash in global oil prices.

Ambani, in August 2019 too, had announced talks for the sale of a 20% stake in the oil-to-chemicals (O2C) business, which comprises its twin oil refineries at Jamnagar in Gujarat and petrochemical assets, to Saudi Aramco. 

The deal was to conclude by March 2020 but has been delayed because of the pandemic and its fallout on the finances of Saudi Aramco, which generates the bulk of the kingdom’s revenues and is already under pressure to hand out tens of billions of dollars in dividends to the state, according to the FT.

The coronavirus crisis that had hit oil demand and prices hard since the end of 2019 has also increased the debt levels of the Kingdom, forcing both the government and Saudi Aramco into cash preservation mode.

RELIANCE STAKE

Analysts say a stake in Reliance's O2C business would give Aramco an entry into one of the world's fastest-growing fuel markets.

It would also give a ready-made market for 500,000 barrels per day of its Arabian crude and offer a potentially bigger downstream role in the future.

Reliance had in 2019 put $75bn up as the value of the O2C business after signing a non-binding letter of intent with Saudi Aramco.

Aramco has an equity stake in China's largest O2C project at Zhejiang with a long-term crude supply agreement and a plan to build a network of retail outlets. It also has a fuel retailing joint venture with Sinopec operating 1,000 retail outlets.

Jefferies had said in a separate report last month: "An investment in RIL's O2C subsidiary could give Aramco a similar footprint - a stake in India's largest O2C project with a long-term crude supply agreement and a participation in fuel retailing via the RIL-BP joint venture."

  • With reporting by Reuters and Financial Times.

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