Evaluating impact of RIL-Saudi Aramco O2C deal cancellation

Evaluating impact of RIL-Saudi Aramco O2C deal cancellation

Shares of Reliance Industries (RIL), Monday nosedived on NSE as investors pressed exit button after it dropped plans to hive off its Oil-to-Chemical (O2C), intended as a part of a potential stake sale to Saudi Aramco.
RIL’s share slipped more than 4.5% to Rs 2,361 apiece in early trade.
This move would help bring both the giants to negotiations table as RIL maintained the Saudi Arabian oil giant to be its preferred investment partner in India’s private sector and looks to collaborate with Saudi Aramco and SABIC for investment in Saudi Arabia.

RIL’s decision to re-evaluate Aramco deal are based on three aspects.
RIL is likely to generate Rs 2.5 lakh crore in EBITDA in the next two years, which would be sufficient to undertake future investments and manage their O2C business balance sheet including for expansion into speciality chemicals and also for reducing debt further.
Mukesh Ambani led company is also expected to benefit as it will not have a holding company discount that was envisaged earlier because of creation of O2C subsidiary. O2C subsidiary creation is being withdrawn by RIL.
Meanwhile, RIL is moving ahead on a much larger scale in the new material business and that is probably urging the company to look at the tie-up differently and not confining to just O2C business with Aramco.

For Aramco, the oil business it not the future. Their future is also in the new material business. Aramco has already announce their intention of becoming the largest supplier of green hydrogen fuels* in future.
Fundamentally , RIL is well placed to rip the reward. The negative market sentiments observed on RIL, due to reevaluation of Aramco deal should be used as an opportunity to buy a fresh at lower levels.

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