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Aramco plans to buy Reliance refining stake as earnings drop

August 13/2019

MOSCOW (MRC) -- Saudi Aramco plans to buy a stake in the refining and chemicals business of Indias Reliance Industries Ltd., moving to diversify from Saudi Arabia as its first half-year earnings report showed a drop in net income, said Bloomberg.

The purchase by Aramco, the largest oil exporter and the most profitable company in the world, precedes a planned public offering that could be held as early as next year. Profit slid 12% to USD46.9 billion in the first six months as crude prices fell and costs rose, the state-owned company said Monday.

"In downstream we will further profitably diversify our operations and increase petrochemicals production, Khalid Al-Dabbagh, senior vice president for finance, strategy and development, said in an interview. The details of the agreement with Reliance remain in the early stages," he said.

The deal will allow Aramco, officially known as Saudi Arabian Oil Co., to expand its chemicals business as it seeks to reduce reliance on sales of crude. Saudi Crown Prince Mohammed bin Salman, who runs the country day to day, is pursuing a radical program to diversify the economy and can tap the companys strong balance sheet to finance his plans.

For Reliance, the cash from Aramco will help reduce debt thats been pushed up by a headlong expansion into new sectors such as telecommunications.

Aramco will buy a 20% stake in the companys oil-to-chemicals business, including the 1.24 million-barrel-a-day Jamnagar refining complex on Indias west coast, Reliance Chairman Mukesh Ambani said in Mumbai. Reliance values its oil-to-chemicals division at USD75 billion including debt, implying a USD15 billion valuation for the stake.

Despite the decline in profit at Aramco, the state oil giant increased cash flow and raised its dividend to almost match net income, giving a special payout to the government. Those are key concerns for potential investors ahead of an initial public offering planned for 2020 or 2021.

Aramco will hold its first-ever earnings call with investors later Monday as it tiptoes toward the greater disclosure required of public companies. It published annual financial statements for the first time in April, ahead of a USD12 billion bond sale. An IPO would put the Saudi giant under even greater scrutiny from investors and invite comparisons with other oil majors.
Author:Anna Larionova
Tags:Reliance Industries, Saudi Aramco.
Category:General News
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