Reliance-Aramco no-deal is sign of the ESG times | Reuters

Reliance-Aramco no-deal is sign of the ESG times | Reuters

Green and black are increasingly clashing. Reliance Industries (RELI.NS) and Saudi Aramco (2222.SE) will re-examine a plan first unveiled more than two years ago for the oil colossus to pump $15 billion into the Indian conglomerate’s refining operations. The impasse reflects how quickly investment decisions are being upended by the energy transition.

The two titans were natural partners when they sketched out the all-cash deal in August 2019 for Aramco to buy 20% of Reliance’s oil-to-chemicals business, known as O2C. It would have brought together the world’s top crude producer and one of the biggest refinery operations, located in Jamnagar, Gujarat. As oil prices crashed early in the pandemic, the transaction stalled. By the time they recovered in February, Reliance boss Mukesh Ambani was gearing up to announce a plan for his Jamnagar complex to house a large integrated renewable-energy manufacturing facility. Using green hydrogen to run the refinery, as is envisioned, would make carving out O2C inefficient.

Following Friday’s news that the deal was off, Aramco lost some $37 billion of market value. The development, however, avoids a potential embarrassment for Saudi Arabia, which reckons the world is beating too hasty a retreat from fossil fuels. The recent election read more of Aramco Chairman Yasir Al-Rumayyan onto Reliance’s board suggests Riyadh will have some security over where it sells oil for some time.

India’s largest listed company fails to crystalise a $75 billion valuation for O2C, but it can live without the cash. Reliance has reduced debt with proceeds from selling stakes in its retail and digital units. And if Aramco had paid Reliance partly in shares, an idea that emerged as the deal dragged on, it might have deterred climate-conscious investors from recognising Ambani’s greener pursuits.

Reliance also has attractive ways to finance $10 billion of planned expenditures on new energy over the next three years. There’s no shortage read more of affordable capital for large Indian companies seeking to fund such projects. Issuers including Adani Green Energy (ADNA.NS) and Renew Energy (RNW.O) are raising money at within half a percentage point of India’s 4% benchmark interest rate, Jefferies analysts point out. Under the rapidly evolving circumstances, Reliance and Aramco won’t be the last to rethink a relationship.