Page 4 - DMEA Week 33 2021

DMEA COMMENTARY DMEA
Higher valuation for Aramco’s RIL deal
Greater detail about Aramco’s planned share exchange with Reliance illustrates the benefits to the Saudi firm of guaranteeing offtakers for its crude
MIDDLE EAST
WHAT:
The deal would involve Aramco trading 1% of its shares for a 20% stake in Reliance’s oil-to- chemicals business.
WHY:
Thisassumesa$20bn deal valuation in a deal that will create a symbiotic relationship between the parties.
WHAT NEXT:
If the deal proceeds, it will see Aramco further fulfil its key objective of adding to its dedicated crude outlets which shelter the firm from market volatility.
SAUDI Aramco’s proposed deal to acquire a 20% stake in the downstream business of India’s Reliance Industries Ltd (RIL) could cost the company $5bn-10bn more than previously anticipated.
According to a report this week by Bloomb- erg, the all-stock deal to buy the participation in RIL’s oil-to-chemicals (O2C) division would come in at around $20-25bn, equating to around 1% of the Saudi firm’s share capital.
The agreement had been widely expected to costroughly$15bn,givingRelianceO2Cavalu- ation of $75bn, but the latest report suggests the Indian firm’s value would be $100bn-125bn.
The sources said that an announcement is likely to be made in the next few weeks. If the transaction proceeds, it will be Aramco’s first all-stock deal since its world record initial public offering (IPO) in 2019.
Aramco shares
The potential swap of shares with Reliance sug- gests that the Indian firm was the subject of com- ments by Saudi Crown Prince Mohammed bin Salman (MbS) who said in April that talks were ongoing for a company to acquire a minority share in the company.
During a televised interview, he said: “I don’t want to give any promises, but there’s a discus- sion for acquisition of a 1% stake by a leading global energy company in an important deal that would boost Aramco’s sales in a major country,” MbS said, with sources quoted by several pub- lications as saying that Chinese investors were involved.
Following the interview, Reuters quoted peo- ple close to sovereign wealth fund China Invest- ment Corp. (CIC) as saying that it was among
those that could invest, with Chinese NOCs likely to form a consortium. Meanwhile, another source at a state-backed private equity fund said that Aramco has been courting Chinese inves- tors for several years, with CIC the most likely to pull the trigger. The Silk Road Fund was also reported to have been approached.
MbS noted: “There are talks with other com- panies for different stakes, and part of Aramco’s shares could be transferred to the [Saudi] Public Investment Fund [PIF] and [another] part listed ontheSaudibourse.”
In late 2019, the Saudi government sold a stake of 1.5% in Aramco in the company’s initial public offering (IPO) on the Tadawul All Share Index (TASI), the Saudi stock exchange. This raised $25.6bn, making it the world’s largest-ever IPO, with a further 0.23% sold later increasing the return to $29.4bn. This was duly transferred to the PIF, which is the country’s main sovereign wealth fund.
In January this year, MbS said that more shares in Aramco would be sold in order to expand the PIF. “There will be [more] Aramco share offerings in the coming years, and this cash will be transferred to the Public Invest- ment Fund,” he said, noting that the PIF would use the proceeds to invest both locally and internationally.
Deal Progress
During its Q2 earnings call earlier this month, Aramco said that it was continuing to carry out due diligence on the proposed RIL deal.
This follows around two years of protracted negotiations between the two companies since news of the planned investment was announced in August 2019.
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