Success of Aramco could be positive for M&A deals of Indian refiners as well

The wait ended on Sunday, when Saudi Arabian oil giant, Saudi Aramco, announced its blockbuster IPO. Everyone would like to be part of this story, directly or indirectly. And so will be Indian refining and marketing companies, but how much only time will tell.

Aramco, which is already finding its footings in India’s downstream oil market, could also emerge as a key contender for acquiring domestic companies here.

K. Ravichandran Senior Vice President Group Head-Corporate Ratings ICRA Limited, said "The reported valuation of $1.71 trillion and IPO size of around $25 billion have come at the upper end of the range of market expectations. If the company is able to go ahead with this fund raising, it will be a significant positive for the M&A deals for some of the Indian refining and marketing companies, as one can expect Saudi Aramco to bid aggressively for Indian companies given the vast market growth potential India offers."

Also read: Are Mukesh Ambani, India’s wealth fund NIIF looking to buy into Aramco IPO?

Finding a mention in the Aramco IPO prospectus is Reliance Industries Ltd. "The company has recently entered into non-binding agreements regarding the expansion of its downstream business in Asia, including entering into a non-binding letter of intent with Reliance Industries Limited on 12 August 2019 to purchase a 20 per cent stake in its oil to chemicals division," it read.

Vandana Hari, Founder and CEO of Vanda Insights, said, "As Aramco goes into its long-awaited IPO, potential investors are going to carefully weigh all the pros and cons of buying shares in the company, and especially comparing it with oil majors such as ExxonMobil and Shell if it is about betting on the global oil markets. "

There are some cons that Aramco can't do much about. Concerns over its geopolitical and operational risk as well as corporate governance and tight government control are among them, she said adding "But, among the pros, Aramco is counting on its upstream heft, hedged by downstream diversification. In that regard, diversification outside the Kingdom and a presence in the big and fast-growing markets such as India count as a big plus."

The stake purchase in Reliance refining and petrochemicals and in the planned grassroots Joint Venture refinery was a well thought-out and carefully executed strategy to complete an image of a global, integrated oil company, she pointed out.

During Prime Minister Narendra Modi’s visit to the Kingdom, it was acknowledged that energy security is one of the prime areas of India’s engagement with Saudi Arabia which plays a vital role as a reliable source for the country’s long-term energy supplies.

Both countries are keen to transform the buyer-seller relationship in this sector into a much broader strategic partnership based on mutual complementarities and interdependence. From a purely buyer-seller relationship, India and Saudi Arabia are now moving toward a closer strategic partnership that will include Saudi investments in downstream oil and gas projects.

"We value the Kingdom’s vital role as an important and reliable source of our energy requirements. We believe that stable oil prices are crucial for the growth of the global economy, particularly for developing countries. Saudi Aramco is participating in a major refinery and petrochemical project on India’s west coast. We are also looking forward to the participation of Aramco in India’s Strategic Petroleum Reserves," the Prime Minister had said.

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