MOSCOW (MRC) -- Reliance Industries and Saudi Aramco have called off a deal for the state oil giant to buy a stake in the oil-to-chemicals business of the Indian conglomerate due to valuation concerns, sources with knowledge of the matter said, as per Reuters.
Talks broke down over how much Reliance's oil-to-chemicals (O2C) business should be valued as the world seeks to move away from fossil fuels and reduce emissions, they said. Instead, Reliance will now focus on signing multiple deals with companies to produce specialty chemicals for higher margins, one of the sources said.
Aramco, the world's top oil exporter, signed a non-binding agreement to buy a 20% stake in Reliance's O2C business for USD15 B in 2019. Last week, the companies announced they would re-evaluate the deal, ending two years of negotiations.
The collapse of the deal reflects the changing global energy landscape as oil and gas companies shift away from fossil fuel to renewables. Valuations of refining and petrochemical assets have gone down especially after the recent COP26 climate talks in Glasgow, a second source involved in the deal discussions said. Despite this, Reliance had stuck to the USD75 B valuation for the O2C business made in 2019, he said.
"Evaluation by consultants showed a significant cut in valuation...more than a 10% cut," he added. "Reliance has highlighted the difficulty of separating Jamnagar from the clean energy business as a reason to not complete the transaction, although we suspect business alignment and valuation were also key reasons," Bernstein wrote in a recent note, referring to Reliance's huge refining complex in Gujarat state. A second source familiar with due diligence said the procedure was halted in "early stage assessment".
Reliance was seeking advice from Goldman Sachs and Aramco was seeking help from Citigroup, sources said. The banks declined to comment. Jefferies has cut its valuation of Reliance's energy business to USD70 B from USD80 B, while Kotak Institutional Equities has cut the enterprise value of O2C business to USD61 B. Bernstein values that business at USD69 B.
Without confirming whether the deal has been called off, Saudi Aramco said it has a longstanding relationship with Reliance and will continue to look for investment opportunities in India. Reliance said it would continue to be Saudi Aramco's preferred partner for investments in the private sector in India and will collaborate with Saudi Aramco & SABIC for investments in Saudi Arabia. Reliance is the biggest Indian buyer of Saudi oil.
As per MRC, Reliance Industries (RIL) has taken off-stream one of its polypropylene (PP) plants in Jamnagar, India for a scheduled maintenance. Thus, this unit with an annual capacity of 400,000 tons/year of PP was shut on 5 August 2021 and will remain idle for approximately one month. The local supply is expected to take a hit from the shutdown, especially when demand is recovering from the COVID-19 outbreak.
According to MRC"s ScanPlast report, Russia"s estimated PE consumption totalled 1,868,160 tonnes in the first nine months of 2021, up by 18% year on year. Shipments of all grades of ethylene polymers increased. At the same time, PP shipments to the Russian market were 1,138,510 tonnes in January-September 2021, up by 30% year on year. Supply of propylene homopolymer (homopolymer PP) and block-copolymers of propylene (PP block copolymers) increased, whereas supply of injection moulding statistical copolymers of propylene (PP random copolymers) decreased significantly.