Reliance Industries and Saudi Aramco recently canceled their deal.
RIL-Saudi Aramco Deal: Reliance Industries and Saudi Aramco recently canceled their deal. Now according to a report by Reuters, the reason behind this is concerns about valuation. The report said that talks closed on how much value Reliance’s oil to chemical (O2C) business should be valued at a time when the world is trying to reduce emissions by moving away from fossil fuels.
According to the report, instead of this, the company will focus on signing several deals to produce specialty chemicals. Saudi Aramco, the world’s largest oil exporter, had signed an agreement to buy 20 percent stake in Reliance’s O2C business. This agreement was made in the year 2019 for $ 15 billion.
Decline in the valuation of refining and petrochemical assets
Last week, the companies announced that the companies would re-evaluate the deal. This ended the round of talks going on for two years. The end of the deal reflects the changing global energy environment, as oil and gas companies are now focusing on renewable energy instead of fossil fuel. Valuations of refining and petrochemical assets in particular have declined after the recent COP26 talks in Glasgow.
Despite this, Reliance was insisting on a valuation of $75 billion for the O2C business in 2019, according to a Reuters report. The report further states that the valuations by the consultants showed a significant reduction in valuations. Reliance cited difficulties in separating Jamnagar from its clean energy business as the reason for not completing the transaction. Bernstein wrote in a recent note that, however, he sees problems related to business and valuation as the main reasons.
Was taking advice from Reliance Goldman Sachs
According to the report, Reliance was taking advice from Goldman Sachs in this matter. At the same time, Aramco was taking help from Citigroup. However, both the banks have not yet given their response in this matter.
Jefferies had cut its valuation for Reliance’s energy business from $80 billion to $70 billion. Whereas, Kotak Institutional Equities cut the enterprise value of the O2C business to $61 billion. Bernstein has valued his business at $69 billion.
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