Reliance Industries Ltd (RIL) Chairman Mukesh Ambani announced in August 2019 that Saudi Arabia’s state-owned oil producer Saudi Aramco was planning to acquire a 20% stake in RIL’s oil-to-chemicals (OTC) for $15 billion, based on an enterprise value of $75 billion. Both companies initially expected to finalize the deal by March 2020.
However, the talks have not progressed after the COVID-19 pandemic hit the energy market and painted a gloomy outlook in the refining industry. This results in differences in the valuation of the business. Aramco wants RIL to review the valuation they agreed before the health crisis, according to two familiar with the matter. Besides, the pandemic has impacted Aramco’s balance sheet.
Another source said RIL avoided settling for a reevaluated valuation and instead preferred to wait for the market to recover. Both Ambani and Aramco’s CEO Amin Nasser confirmed that the talks over the deal are on but have not progressed as per the planned timeline. Ambani also noted that both firms are seeking a commercial deal when the market condition allows for a win-win solution.
Analysts at Bernstein Research estimated that RIL’s valuation of $75 billion in 2019 could have fallen to nearly $57 billion by July 2020. Since the announcement of the deal, Brent crude prices have declined by 23.44%. RIL’s OTC business generated an EBITDA of INR553.9 billion ($7.4 billion) in the fiscal year ended March 31.
