The outbreak of coronavirus and the crash in crude oil prices have forced Saudi Aramco, the oil company controlled by Saudi Kingdom, to suspend the $15 billion deal with Reliance Industries (RIL). "Due to unforeseen circumstances in the energy market and the COVID-19 situation, the deal has not progressed as per the original timeline," Mukesh Ambani, chairman of RIL said at the company's 43rd Annual General Meeting (AGM).
With this announcement, RIL's share price crashed nearly 4 per cent to Rs 1,844 in the final session trade on Wednesday.
Ambani said that the company's equity requirements have already been met with the deals with Facebook, Google, BP Plc and a slew of private equity companies around the world. RIL has raised Rs 2,12,809 lakh crore (including the Rs 53,124 crore rights issues and other commitments) in the last three months.
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Ambani didn't elaborate on the future possibilities of concluding the deal. He said, "Nevertheless, we at Reliance value our over two-decade long relationship with Saudi Aramco and are committed to a long-term partnership. We will approach NCLT (National Company Law Tribunal) with our proposal to spin off our O2C business into a separate subsidiary to facilitate this partnership opportunity. We expect to complete this process by early 2021."
Aramco was planned to pick up 20 per cent stake in Reliance O2C Ltd, the newly-formed subsidiary, for Rs 1.14 lakh crore. Ambani had prepared a blueprint for its oil-to-chemical (O2C) play and discussed it with the Crown Prince of Saudi Arabia, Mohammed bin Salman, in February 2019, when the de-facto leader visited India.
RIL wants to convert 70 per cent of its output from the Jamnagar refinery and petrochemical complex to chemicals. At present, the complex produces 90 per cent fuels - primarily petrol, diesel, naphtha, kerosene and liquefied petroleum gas - and 10 per cent chemicals.
Convinced by Ambani's concept, Saudi Aramco has expressed its desire to be a strategic partner. The deal includes stake in material assets such as the two refineries and a petrochemical complex in Jamnagar, besides stake in fuel retailing. "As the world migrates from fossil fuels to renewable energy, we will maximise O2C conversion and upgrade fuels to high-value petrochemicals. This will be done in a phased manner over the next decade to meet the rapidly increasing demand for petrochemicals, in India and the region," Ambani said in the company's 2019 annual report.
Aramco had also agreed to supply 500,000 barrels of crude oil every day to RIL's Jamnagar refinery (28 per cent of its requirement) on a long-term basis. If the deal could have materialised, the Saudi firm would have been holding stake in Jio-BP fuel retailing business also.
BP has invested Rs 7,629 crore for their 49 per cent stake in the Jio-BP.