Page 7 - MEOG Week 18 2021

MEOG COMMENTARY MEOG

the Red Sea coast. However, articles on the Ara- Saudi Arabia’s raised its May official selling
mco website in October 2020 said that the ‘next prices (OSPs) to Asia by $0.2-0.5 per barrel, with
phase’ remained under construction, noting the Indian authorities advising refiners to ramp up
addition of 821 km of new pipelines, just over crude imports from the US and Africa. Earlier
half the amount anticipated when it released its this month, Reuters quoted sources as saying
2017 annual report. that India’s state-owned refineries would buy
According to Aramco, ‘the total length [of] 36% less Saudi crude in May than usual, as New
pipeline in service, ready for commissioning, Delhi has accused Saudi and its OPEC+ partners
or decommissioned is 3,850 km, and pipelines of driving up crude prices while India attempts
under construction total an additional 1,075 km’. to recover from the coronavirus (COVID-19)
pandemic.
Finding a buyer The public refiners placed orders to buy
With all of this asset monetisation on the agenda, 9.5mn barrels of crude from Aramco in May,
the Aramco cash push went into overdrive down from the 10.8mn barrels planned previ-
this week when the Kingdom’s Crown Prince ously, according to the sources.
Mohammed bin Salman (MbS) said in a tele- However, India’s Business Today quoted
vised interview that Riyadh was in talks to sell a sources close to proceedings as saying that the
1% stake in the company. stand-off has not had an impact on the NOC’s
At its current market capitalisation, a 1% plan to buy a 20% stake in Reliance’s refining,
stake in Aramco is worth around $19bn. “I don’t petrochemicals and fuels marketing businesses,
want to give any promises, but there’s a discus- known as Reliance O2C. The sources said that
sion for acquisition of a 1% stake by a leading Aramco is serious about partnering Reliance and
global energy company in an important deal that the discussions are progressing as anticipated.
would boost Aramco’s sales in a major country,” In August 2019, the Saudi firm signed a letter
MbS said, with sources quoted by several pub- of intent (LoI) to purchase the stake for around
lications as saying that Chinese investors were $15bn, thereby valuing the Indian firm at $75bn.
involved. Reliance’s chairman and managing director
Following the interview, Reuters quoted peo- Mukesh Ambani added that as part of the deal,
ple close to sovereign wealth fund China Invest- his company would agree to a long-term pur-
ment Corp. (CIC) as saying that it was among chase of 500,000 barrels per day (bpd) of Ara-
those that could invest, with Chinese NOCs mco crude.
likely to form a consortium. Meanwhile, another The jewel in the Reliance crown is the 1.24mn
source at a state-backed private equity fund said bpd Jamnagar refining complex, and the acqui-
that Aramco has been courting Chinese inves- sition of a 20% stake in the business would add a
tors for several years, with CIC the most likely theoretical net refining capacity of 240,000 bpd
to pull the trigger. The Silk Road Fund had also to Aramco’s books.
been approached, according to Reuters. In March, citing sources with intimate knowl-
The Crown Prince noted: “There are talks edge of proceedings, India’s Economic Times
with other companies for different stakes, and said that the final deal could comprise a com-
part of Aramco’s shares could be transferred to bination of stock and cash and these rumours
the [Saudi] Public Investment Fund [PIF] and returned this week in reports carried by Reuters
[another] part listed on the Saudi bourse.” and the Financial Times.
In late 2019, the Saudi government sold a Despite having cut its 2020 capital pro-
stake of 1.5% in Aramco in the company’s initial gramme by around $12bn owing to the impact
public offering (IPO) on the Tadawul All Share of the COVID-19 pandemic, Aramco remains
Index (TASI), the Saudi stock exchange. This intent on expanding dedicated markets to which
raised $25.6bn, making it the world’s largest-ever it can sell crude long term.
IPO, with a further 0.23% sold later increasing At the time, a Reliance official was quoted as
the return to $29.4bn. This was duly transferred saying: ‘Aramco sees Reliance O2C as the dedi-
to the PIF, which is the country’s main sovereign cated buyer of its crude. When the uncertainties
wealth fund. rule the oil world, building a relation in one of
In January this year, MbS said that more the largest oil-consuming countries will solidify
shares in Aramco would be sold in order to its position for future.’
expand the PIF. “There will be [more] Aramco In February, Reliance shares rose 1.5% after
share offerings in the coming years, and this reports emerged that it was finalising a deal that
cash will be transferred to the Public Invest- would demerge its O2C business into a subsid-
ment Fund,” he said, noting that the PIF would iary that will initially be wholly owned by the
use the proceeds to invest both locally and parent. The new O2C subsidiary will be include
internationally. Reliance’s refining and petrochemicals assets,
its bulk wholesale marketing business, its fuel
RIL deal still on retail arm which comprises a 51% stake in a joint
Aramco’s planned deal to acquire a 20% stake venture with BP and oil trading subsidiaries in
in India’s Reliance Industries’ oil-to-chemicals Singapore and the UK.
(O2C) division is proceeding as planned despite While the details of the spin-off are yet to be
a breakdown in relations between Riyadh and concluded, Reliance is expected to be valued at
New Delhi. $75-85bn, including the company’s debt.™

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