Reliance drops after slamming brakes on $15-billion Aramco deal
Reliance Industries’ stock dropped 4.2 percent on Monday after the company postponed a stake sale to Saudi Arabia’s Aramco in its oil-to-chemicals division and backed away from a possible spinoff of its most profitable section.The decision two years ago to monetize its oil sector by selling a 20% stake to the world’s largest oil exporter for around $15 billion was part of a plan to reduce the country’s overall debt, which stood at 2,882.43 billion rupees ($41.8 billion) at the time.
During the due diligence period, however, Reliance became debt-free by selling stakes in its digital company Jio Platforms to global companies such as Meta Platforms Inc and venture capital arms of chipmakers Intel Corp and Qualcomm.Meanwhile, as the global epidemic played havoc on oil consumption and prices, Reliance stepped up its commitment to renewable energy, pledging $10.1 billion over three years to become a net carbon zero corporation by 2035.
According to Jefferies analysts, the transaction cancellation would not affect the conglomerate’s balance sheet, but it will be upsetting because it will miss out on a chance to create a $75 billion value benchmark for the oil company.”The market is responding since the purchase was intended to assist minimise exposure to the hydrocarbons business, but that hasn’t happened,” said Sumit Pokharna, VP Research at Kotak Securities.
“However, Reliance has a number of factors working in its favour, including a strong retail business, a rapid recovery in refining margins, a probable boost in telecom rates and Jio subscriber additions, and a sharp recovery in refining profits.”Despite the shift in approach, Reliance said on Monday that Aramco would remain its preferred partner for private-sector investments in India.Despite criticism from investor California State Teachers’ Retirement Fund, the corporation recently inducted Aramco Chairman Yasir Al-Rumayyan to its board of directors.The hiring of Al-Rumayyan, which was initially considered as part of a procedure to formalise the stake sale, was later reported to have no bearing on the transaction.The blue-chip Nifty 50 index fell more than 1% as Reliance shares, which are on track for their worst day in roughly ten months, drove it down.
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