Shares in Mukesh Ambani’s Reliance Industries tumbled more than 4 per cent after the Indian conglomerate revealed that a long-awaited $15bn deal with Saudi Aramco had been called off.
India’s largest company said in August 2019 that it signed a “non-binding letter of intent” to sell 20 per cent of its refinery business to Saudi Aramco at a valuation of about $75bn.
But talks stagnated with the onset of the coronavirus pandemic, which caused turbulence in energy markets and hurt Saudi Aramco’s finances, exacerbating existing reservations within the kingdom about the deal’s high valuation.
Reliance, which is controlled by Ambani, India’s richest man, said late on Friday that the companies “mutually determined that it would be beneficial for both parties to re-evaluate the proposed investment”.
Shares in Reliance fell 4.3 per cent to Rs2,365 a share in Mumbai on Monday, the first day of trading after the announcement, contributing to one of the worst days for India’s stock market in months.
Ambani continued to suggest that the deal would be finalised, most recently this year, and the two companies earlier this year held talks over a potential cash and share deal.
Reliance added that it would retract a proposal to spin-off its refinery unit — one of its three business areas alongside its telecoms group Jio and its retail business, India’s largest — a move which had been designed to help facilitate strategic investment.
For Saudi Aramco, the deal had represented an opportunity to secure a long-term outlet for oil sales to India, a net importer whose energy demand is expected to grow faster than anywhere else in the world over the coming decades.
But the pandemic, and the accompanying hit to energy prices and demand, strained the state company’s finances, forcing an overhaul of its portfolio and fuelling concerns about the deal.
“Reliance and Aramco have a longstanding relationship and will continue to look for investment opportunities in India,” the Saudi oil company said in statement. “India offers tremendous growth opportunities over the long term and Aramco continues to evaluate new and existing business opportunities with our potential partners.”
Reliance announced the deal at a time when it was under pressure to clean up a debt-heavy balance sheet. But it has since cut its liabilities, securing billions of dollars of investment into Jio and Reliance Retail from Facebook, Google, private equity funds and Saudi Arabia’s sovereign Public Investment Fund.
Yasir al-Rumayyan, PIF’s head and chair of Saudi Aramco, joined Reliance’s board this year as the group sought to build closer ties with the kingdom.
Jefferies cut its valuation of Reliance’s energy business to $70bn from $80bn. It cited the missed opportunity given the recent rebound in oil prices to $80 a barrel. “With crude at $80 and Aramco’s chairman inducted into RIL’s board, this comes as a disappointment,” the brokerage said.
Reliance says it is now trying to grow its renewable energy business. It has pledged to invest $10bn in clean energy over the next three years, aiming to build solar energy capacity and gigafactories for battery storage.