Following up plans hinted at last spring by The Times of India, Saudi Aramco has signed a non-binding Letter of Intent (LOI) to acquire a 20% stake in the Oil-to-Chemicals division of India’s Reliance Industries (RIL).

Recently, reports had suggested the deal had fallen apart over a failure to agree on the value of the assets and RIL’s wish to include debt.

The Indian group said the LOl assigns an enterprise value of $75 billion to the division that holds its refining, petrochemicals and fuels marketing businesses. This means Aramco will pay around $15 billion for the share.

As part of the arrangement, the Saudi state-owned oil giant will supply 500,000 bbl/d of Arabian crude on a long-term basis to RIL’s Jamnagar refinery. The facility has deep integration of refining and petrochemical activities across multiple manufacturing facilities.  Aramco and Reliance have worked together for over 25 years.

The refinery share purchase is one of a string of deals the Saudi group has been pursuing as part of the government’s ongoing campaign to balance its upstream business with an enhanced position downstream in petrochemicals. Some observers see the activity as a test run to assess sentiment ahead of a long-planned initial public offering (ipo).

Aramco’s pact with Reliance gives it its first presence in India’s refinery sector; in 2016, it lost out to Russian state-owned oil and energy group Rosneft in a bid to acquire refiner Essar Oil.

Saudi Arabia is especially keen to establish a berth in India, where demand for oil is growing rapidly.  On an official visit to New Delhi in February, crown prince Mohammed bin Salman broached plans to invest more than $100 billion in the country. RIL is India’s largest polymer producer by far, with major positions in polyethylene and PET.

While Aramco’s expansion drive downstream has been in progress for several years – at the end of 2018, it took control of the Arlanxeo rubber joint venture established with Lanxess in 2016 – this year has seen several additional deals.  The attention grabber was its $69 billion acquisition of a 70% controlling stake in compatriot SABIC, which has leading positions in plastics.

IPO plans may be back on track

Signs are increasing that Aramco may finally be ready to go ahead with its long delayed ipo that has been on the back burner for some time, to an Aug. 9  the Wall Street Journal said last week.

Citing “people familiar with the discussion,” the newspaper said government officials think the time could now be right to capitalize on positive market reaction to the a $12 billion bond issue launched last spring to stem the SABIC acquisition. It would be the world’s biggest stock listing.