Saudi oil major continues push into Asian oil refining after agreement with India's Reliance Industries Ltd

Saudi Aramco continued its push into Asian oil refining with an agreement announced on 12th August to buy a 20 percent stake in Reliance Industries Ltd’s oil-to-chemicals division at an enterprise value of $75 billion.

The deal, announced by Reliance chairman Mukesh Ambani at the company’s annual general meeting in Mumbai, is the biggest foreign investment in the company’s history and covers all of Reliance’s refining and petrochemical operations, including the Jamnagar refinery, the world’s biggest.

Aramco, the world’s biggest crude exporter, will also supply the refinery with 700,000 barrels of oil a day on a long-term basis, Ambani said.

The deal is subject to due diligence, definitive agreements and regulatory and other approvals, Ambani said.

Petroleum industry analysts said the deal will help both Saudi Aramco and Reliance Industries, with Saudi Aramco using this as its entry step for an ambitious expansion plans in India.

“The deal will also help Saudi Aramco to source various petroleum products in India if it wants to enter the fuel marketing business in India,” said Kalpana Jain, oil industry analyst with Deloitte India.

For Reliance Industries, the deal could help it to partly de-risk its OTC business, while raising resources needed for retiring the group’s increasing debt, and also for investments in its other focus businesses, Jain added.

“The deal works well for both of them,” the Deloitte India analyst said.

Middle Eastern oil giants like Aramco have been expanding into downstream operations as they seek to move from being pure producers to becoming more integrated energy companies.

Reliance’s debt has risen over the past few years, as the Indian conglomerate poured money into new sectors such as telecommunications, and stood at $32 billion at the end of December, data compiled by Bloomberg show.

Ambani, Asia’s richest man, met with Saudi Energy Minister Khalid Al-Falih in December to discuss opportunities for joint investments in petrochemical, refining and communications projects, according to a tweet from the latter at the time.

Aramco has been targeting refining deals in India since at least last year, when CEO Amin Nasser told reporters that the firm wanted to double capacity to produce gasoline and other fuels.