RIL-Aramco deal hits hurdle over inclusion of group debt in refinery operations

The blockbuster deal involving the world's largest oil producer Saudi Aramco picking up a minority stake in the refinery business of the country's largest corporate house Reliance Industries (RIL) seems to have hit a roadblock over the deal's structure and valuation where a portion of the Indian entity's group level debt was proposed to flow into the target entity.

Sources close to the development said that Reliance's proposal to shift a portion of its group level debt to the refinery business before its stake sale to Aramco has changed the entire dynamics of the deal and has made the government-owned Saudi company uncomfortable, temporarily stalling the talks.

Though negotiations are expected to resume again with a few alternatives being brought to the table, the process could entail a long winding journey thereby delaying the deal that could run into billions of dollars, sources privy to the talks said.

RIL shares closed 0.6 per cent lower at Rs 1,272.85 on the BSE recovering from a larger fall during the trading hours on Tuesday.

While Aramco could not be reached for comments, a RIL spokesperson said: "As a policy we do not comment on media speculation and rumours. Our company evaluates various opportunities on an ongoing basis. We have made and will continue to make necessary disclosures in compliance without our obligations under SEBI regulations and our agreements with the stock exchanges." 

Sources said that the deal between Reliance and Aramco involves the Indian entity offering at least a 20 per cent stake in a special purpose vehicle covering refining, petrochemicals and marketing. RIL is looking for investment to pare debt and focus on the expansion of its refining business. Aramco fits the bill as the company itself had indicated its desire to expand beyond Saudi Arabia and in particular invest in oil and gas space in India.

Though the size of the deal has not been worked out, analysts following the developments said that a stake sale upto 25 per cent in RIL refinery operations may fetch the company in excess of $ 10 billion. The total outstanding debt of the group is about $ 42 billion, about $ 10 billion debt has been added in financial year 2019 itself because of the group's investments in Reliance Jio.

Besides the plan to sell a stake in refinery operations, last week RIL announced that Reliance Industrial Investments and Holdings Ltd. (RIIHL) has entered into an agreement with BIF IV Jarvis India Pte Limited, an affiliate of Brookfield Asset Management Inc for an investment of Rs 25,215 crore in Reliance Jio lnfratel Pvt. Ltd. (RJIPL). As a result of the investment, Canada-based Brookfield and the other investors would get 49 per cent stake in RJIPL.

Apart from investments in the proposed refinery operations, talks at the government level have also taken place to bring Aramco in setting up its own fuel stations in the country. This is part of the strategy to improve consumer experience in the country and expose even state-run retailers to best global practices.

In addition, investment from Aramco would also be looked into specifically in the area of high temperature deep-sea off shore exploration that has been opened for FDI. IANS