Saudi Aramco deal will help India’s Reliance to reduce $42bn debt burden

Reliance CEO Mukesh Ambani said that the company had already been processing Saudi crude oil for 20 years. (AFP)
Updated 18 August 2019

Saudi Aramco deal will help India’s Reliance to reduce $42bn debt burden

  • Reliance will buy up to 500,000 barrels a day of crude oil from Aramco, more than double its current purchase

NEW DELHI: India’s Reliance Industries’ deal to sell a 20 percent stake in its oil to chemicals business to Saudi Aramco will reap major dividends for both companies, analysts said.

Under the terms of the non-binding deal announced earlier this week, the conglomerate will get roughly $15 billion for the 20 percent stake, money that it will use to pare its massive debt load.  Reliance has an overall debt of nearly $42 billion including $20 billion at its fibre division which the group is currently in talks to sell. 

In exchange, Reliance will buy up to 500,000 barrels a day of crude oil from Aramco, more than double its current purchase.

Reliance chairman and the country’s richest man, Mukesh Ambani, said that the company had been processing Saudi crude oil every single day for the past 20 years and this deal, among the largest foreign investments in India, signified “perfect synergy between the world’s largest oil producer and the world’s largest integrated refinery and petrochemicals complex.”

The deal will cover all of Reliance’s refining and petrochemicals assets, including 51 percent of its petroleum retail joint venture.

Reliance has been on the lookout for strategic partners for its businesses to help it in its goal of reducing its debt, said Ajay Bodke, chief executive officer, portfolio management services at Prabhudas Lilladhar, a brokerage. “Reliance has become a net debt company from a net cash company. Whatever money that flows in from this deal will be used by Reliance to deleverage,” he said. It’s “a marriage made in heaven because you have the largest oil explorer in the world tying up with India’s largest oil to chemicals company,” he added.

Gagan Dixit, vice president institutional equities research at Elara Capital, agreed that the deal will give Reliance “much needed capital.” Plus, “refining is a dying business and they can use this money for the high margin business of chemicals,” he said.

That apart, historically Reliance has bought oil from Iran and Venezuela, both of which are under US sanctions. This deal helps Reliance secure its supplies and ensures Aramco that additional business as well, said Dixit. Aramco has been beefing up its business in Asia, especially with some of the large importers of crude oil. With the US, the world’s largest consumer of energy, depending less on Saudi Arabia for oil, Aramco needs new markets to hedge its bets. India, one of the largest energy consumers in the world after the US and China, fits the bill.

 This deal provides Aramco with a steady customer in the midst of global uncertainty in the oil and gas sector, said Anirban Mukherjee, a partner at the Boston Consulting Group. “There’s merit in a producer like Aramco wanting to lock in a large market. India is a very consumption-led economy in the petrochemical sector and it will continue to be a large importer of oil, so this is a good match between producer and market. Rather than a simple supplier-buyer compact, if an oil exploration company has partnerships with some of the large refineries, there’s a permanence to the business.”

This is not Aramco’s first investment in India. In 2017 it opened an office in the Indian capital to expand the company’s international portfolio in this growth region. Last year it announced a joint venture with a consortium of Indian state-owned refiners to set up a $44 billion refinery and a petrochemical project on the country’s western coast.

The proposed refinery, which is yet to take off, is expected to have a total capacity of 18 million tons a year and will process up to 1.2 million barrels of crude oil a day as well as refined petroleum products including petrol and diesel. The proposed project has been billed as among the world’s largest refining and petrochemicals projects and one that has been designed to meet India’s fast-growing demand for fuels and petrochemicals.

The Aramco deal is the latest in a series of moves by Reliance to sell non-core assets or establish joint ventures to reduce debt. Speaking to shareholders, Ambani said the group will become a zero net debt company within 18 months.

Ahead of the Aramco deal, Reliance announced a joint venture with global oil major BP to set up a nationwide network of fuel retail outlets where Reliance will have a 51 percent stake, to cash in on rising demand in the country. It will also market aviation turbine fuel to cater to India’s growing aviation industry. 

“Our transactions with Saudi Aramco and BP will create win-win relationships, generating significant strategic value for our partners,” Ambani said.


UAE-based companies turn to Bangladesh to build their ships

Updated 14 October 2019

UAE-based companies turn to Bangladesh to build their ships

  • Vessels worth $160 million were exported by the South Asian country last year

DHAKA: At present, Bangladeshi ships are being exported to around 12 countries in Asia, Africa and Europe.

“Made in Bangladesh ships have a huge potential in India, Pakistan, Saudi Arabia, the United Arab Emirates (UAE), Norway, Sweden, Denmark, Finland, Italy, Germany and some African countries. Now, our focus is to have more orders from different international buyers and Bangladesh government is also formulating the policies for this export oriented industries,” Dr. Abdullahel Bari, president of the Association of Export Oriented Shipbuilding Industries of Bangladesh (AEOSIB) told Arab News.

Bari, who is also the chairman of Ananda shipyard, said that the country has more than 100 shipyards which produce different kind of ships for the local and international markets. Of them, 12 large shipyards have the capacity to meet the demand of the international market. He said that Bangladesh will have a “golden period” in the next five years in the ship-building sector with both the government and private sector investors keen on exploring new opportunities.

“If everything goes according to the plan, our export earnings from shipbuilding will exceed the benchmark of $1 billion per year within the next five years,” Bari said.

He added that, as a Muslim nation, Bangladesh enjoys goodwill in the Middle East especially in Saudi Arabia and the UAE.

“To bag the opportunities in the Gulf countries, from now onwards, we should have more active participation in different marine fares in Saudi Arabia and UAE,” Dr. Bari said.

FASTFACTS

• At present, Bangladeshi ships are being exported to around 12 countries in Asia, Africa and Europe.

• Ananda Shipyard began exploring the European market by exporting a multi-purpose cargo vessel to the Germany.

• Bangladesh’s export earnings will exceed the benchmark of $1 billion per year within the next five years.

UAE-based shipping company Al Rashid shipping is already in talks with Bangladeshi shipbuilders to source its ships, with Western Marine Shipyard Limited (WMS) – one of the leading shipbuilders in the country – securing orders for the construction of two oil tankers worth $6.8 million. 

“With government support, shipbuilding could play an important role in export diversification. The main challenge for this sector is arranging working capital for projects. If banks and financial institutions come forward in supporting this sector, we can secure more orders from local and foreign buyers,” Saiful Islam, WMS Chairman, said. The shipbuilding company is expecting more orders from the UAE market after the successful delivery of these oil tankers.

“According to our capacity, Bangladeshi shipbuilders can only concentrate on building medium-sized vessels which is within 15,000 Dead Weight Tonnage (DWT) capacity and various utility vessels like OPV, TUGS, offshore vessels, survey vessels, inland container vessels, multi purpose cargo vessels, survey vessels, landing crafts, ro-ro ferries, passenger ships,” Captain Sohail Hasan, managing director of WMS told Arab News.

In 2017, Western Marine also exported one Landing Craft namely “Ajman Trans” to the same company making it the 43rd ship to be exported from Bangladesh.