💔 Reliance and Saudi Aramco Breaking Up?Â
Why aren't Reliance and Saudi Aramco going through with their eagerly awaited deal?
What happens if two of the world's biggest companies come together for a deal? The air will be laced with excitement. You would probably expect that something great is in the works.
That's what happened when Reliance announced that Saudi Aramco, the world's biggest oil exporter, would be investing in its oil-to-chemicals business. Sounds like a match made in heaven (#couple goals)?Â
Well, both the companies have now said that they're re-evaluating the deal. So, why are these companies on a break?
Saudi Aramco's Deal with Reliance
In August 2019, Reliance Industries (RIL) signed a non-binding deal with Saudi Arabia's Saudi Aramco. As part of the deal, Saudi Aramco would buy a 20% stake in RIL's oil-to-chemicals business worth $15 billion. In fact, Reliance also announced that it would spin-off its oil-to-chemicals business into a separate unit altogether.
The deal would have been Saudi Aramco's biggest investment in an Indian company. It would guarantee a steady supply of crude oil for Reliance's refineries. And, The best part? The deal would have been an all-stock deal. Meaning, in exchange for a 20% stake, Reliance would get a stake in one of the world's most profitable companies.Â
Then came 2020, the year that changed all our lives. Both these giant companies couldn't save themselves from the wrath of the pandemic either. They faced multiple difficulties in their businesses, as the demand for oil dried up. And so, the deal was put on the back-burner while the companies focused on other things that required more attention.
Come 2021, the deal was revived again in RIL (Reliance Industries)'s AGM. The question that now comes to our minds is what suddenly happened to break the deal in its entirety?Â
Why the Break-Up?
The pandemic changed the course of things and the biggies had to re-evaluate their strategies. In 2020, Saudi Aramco's profits fell by 44% to $49 billion. The company even lost the title of the most profitable company to Apple!
The pandemic also made us realise the drastic effect of climate change. Thus, the Indian government decided to focus more on green energy.
And, Reliance decided to seize this opportunity. So, in 2021, it promised to invest over $10 billion in alternative energy sources over the next three years. It also said that its Jamnagar factory, which is crucial to its oil-to-chemicals business, will now also be the centre of its renewable energy business.Â
This puts the two companies at odds. Saudi Aramco wants the world's energy production to revolve around fossil fuels and Reliance's move goes directly against this objective.
But as the world is becoming more energy conscious, more and more people are shifting away from fossil fuels. So, from Reliance's perspective, the deal could prove to be a not-so-profitable venture in the near future.
So, it seems both companies want different things. The reason for the break-up, be it people or companies, seems to be one and the same.
However, the deal hasn't been called off completely. The two companies have said that they're reevaluating its terms. Also, Reliance added that it will remain Aramco’s preferred partner in India and "is committed" to a pact with Aramco. Looks like a healthy break-up.
If and when we realize the vision of green energy what will Saudi Aramco do? Will it adapt or will it perish?Â
Only time will tell...
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