The state-controlled Saudi Aramco (SAU:2222, Financial) first expressed interest in buying a 20% stake in the oil-to-chemical business of India’s private-sector conglomerate Reliance Industries (NSE:RELIANCE, Financial) in August 2019. Reliance was hoping to conclude the deal by March 31, 2020, with Aramco valuing its oil and chemicals business at $75 billion, including debt. However, the pandemic and the resultant slump in oil prices caused Aramco’s profits to take a deep plunge, putting the deal on hold.
However, Bloomberg recently revealed that Aramco is considering the purchase of a 20% stake in Reliance’s oil and chemical business in exchange for $20 billion to $25 billion in Aramco shares. Based on Aramco’s $1.9 trillion market valuation, Reliance will get a roughly 1% stake in the world’s largest energy company. The Bloomberg report also said both companies are expected to reach an agreement in the coming weeks. After the report, Reliance shares were up about 2% on Monday at 2,187.80 Indian rupees ($29.42) on the National Stock Exchange of India. On the Bombay Stock Exchange, the shares closed 1.29% above their previous close at 2,172.45 rupees.
Aramco’s upbeat results
Aramco released its results on Aug. 8. The net income for the first half of the current year was roughly $47 billion, twice its net income for the same period (around $23.3 billion) during the previous year when global oil demand had plummeted due to the pandemic. The energy markets have recovered and crude prices are up roughly 35% at almost $70 per barrel, contributing positively to Aramco’s earnings.
The current net income puts the company back to its pre-pandemic position in terms of earnings. Saudi Aramco CEO Amir Nasser said that the April to June quarter showed a strong rebound in global energy demand. He also added that while there is still some uncertainty around Covid-19 variants, Aramco has proven it can quickly adapt to a changing market landscape.
The deal’s current status
Nasser revealed during the earnings call that the company is still doing due diligence on the deal. Meanwhile, Reliance’s chairman Mukesh Ambani expressed at the company’s annual general meeting that he hopes to formalize the Reliance-Aramco partnership in 2021. He also said that Yasir Al-Rumayyan, Aramco’s chairman, will join Reliance’s board as an independent director.
India and Saudi Arabia have been keen on cultivating their trade relations as the former looks to strengthen its energy security and the latter aims to cut back on its support to Pakistan over the Kashmir issue. The relationship between New Delhi and Riyadh was also elevated to a “strategic partnership” in 2019. With Aramco’s financials back to normal, the deal is set to move forward over the next few weeks. The deal will bring the world’s bigger exporter of oil and one of its fastest-growing consumers closer.
