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Saudi Aramco IPO brings cheer to Indian market! Here's why

Nevin John     November 5, 2019

The world's largest initial public offering (IPO), which Saudi Aramco is planning, brings cheer to the Indian market as the Saudi government owned firm targets $100 billion investments in the country. The oil behemoth has announced two voluminous transactions in India - the strategic investment in $44 billion petroleum refinery in Maharashtra and $15 billion worth stake acquisition in the refining and petrochemicals business of Reliance Industries (RIL). Besides, the country may see Aramco bidding for either Bharat Petroleum Corporation (BPCL) or Hindustan Petroleum Corporation (HPCL) or both, which are slated for privatisation.

The Saudi government owned company is a steady performer and it reported revenues of $356 billion (around Rs 25 lakh crore) in 2018, which is six times the revenue generated by the Mukesh Ambani firm and 25 times the revenue generated by ONGC. Aramco's net profit of $111 billion in 2018 made it the most profitable in the world, ahead of Apple Inc., Google's parent Alphabet Inc. and Exxon Mobil Corp. combined.

The Crown Prince of Saudi Arabia, Mohammed bin Salman has been advocating $2 trillion valuation for the firm, but the investors value it lower at around $1.5 trillion because of the geopolitical risks and the anticipated reduction in fossil fuel consumptions. Aramco will issue a prospectus on November 9 for listing its shares on the Riyadh Stock Exchange in December.

ALSO READ: Saudi Aramco IPO: Oil giant to list shares on domestic bourse; prospectus issue on Nov 9

Saudi Aramco and Abu Dhabi National Oil Company (ADNOC) will jointly hold 50 per cent stake in the $44 billion refinery in Maharashtra. The rest of the stake will be owned by Indian Oil Corp, BPCL and HPCL through Ratnagiri Refinery & Petrochemicals Ltd (RRPCL). The refinery was initially proposed to be built at Nanar, a village in Ratnagiri district. But it has been relocated to Raigad district, about 100 km south of Mumbai because of protests from local farmers. The farmers in Nanar refused to surrender the land as they feared the refinery would pollute the region which is famous for Alphonso mangoes, vast cashew plantations and fishing hamlets. The 1.2 million barrels a day refinery and associated petrochemical project has been projected as one of the biggest projects in the country that will bring humongous foreign direct investment (FDI).

The transaction in RIL will give the world's biggest oil producer 20 per cent stake in the world's biggest refinery complex in Jamnagar, Gujarat. In the recent annual general meeting (AGM) of RIL, chairman Mukesh Ambani talked about Aramco's strategic investment plan in RIL's oil to chemicals (O2C) business - which is basically refining and petrochemicals. Aramco also plans to pick up 10 per cent stake in the petroleum retail joint venture of RIL-BP Plc. The two deals together will cost Aramco Rs 1.1 lakh crore. Through the RIL deal, the Saudi firm will also get a dedicated buyer for its crude. According to the plan, RIL's Jamnagar refinery will buy 500,000 barrels of crude oil every day (28 per cent of their requirement) on a long-term basis from Aramco.

ALSO READ: Saudi Aramco to store 4.6 mn barrels of oil in India's Padur reserve

Going by the present market value of BPCL, the buyer will have to spend at least Rs 90,000 crore ($12.7 billion) to buy government's 53 per cent stake and for spending in the mandatory open offer. HPCL acquisition will be cheaper for Aramco as its market valuation comes to around Rs 48,000 crore. The total attributable refining capacity of BPCL is about 35 million tonnes (MT) annually. It operates 15,078 petrol-diesel stations and 6,004 gas stations. HPCL has 18 MT refining capacity and runs 15,127 fuel retail outlets.

The Saudi Ambassador to India, Saud bin Mohammed Al Sati recently said that India is an attractive investment destination and it is eyeing long-term partnerships with New Delhi in key sectors such as oil, gas and mining. "Saudi Arabia is looking at making investments in India potentially worth $100 billion in the areas of energy, refining, petrochemicals, infrastructure, agriculture, minerals and mining," Al Sati said.

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