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As Saudis and Indians Grow Closer, a $15 Billion Deal Blooms

MUMBAI, India — Underscoring its desire for stronger ties to India and the country’s 1.3 billion people, Saudi Arabia’s state-owned oil giant is buying 20 percent of the petroleum-related businesses of Reliance Industries, one of India’s biggest companies.

The $15 billion investment, which Reliance announced on Monday, is a vote of confidence by the Saudis in India’s economy and its prime minister, Narendra Modi, at a time when India’s economy is flagging. Mr. Modi has recently stepped up his efforts to court the Saudis and other overseas investors as the flow of foreign money into India has declined and the country’s trade relationship with the Trump administration has deteriorated.

Saudi Arabia’s closer embrace of India also deals a blow to Pakistan, which has been trying unsuccessfully to rally support among fellow Muslim nations to oppose Mr. Modi’s decision last week to revoke the statehood and semiautonomous status of Jammu and Kashmir, India’s only Muslim-majority state. The region has been fought over by Pakistan and India since they both gained independence from Britain in 1947, and each country occupies portions of it.

Saudi Arabia and Pakistan have long been close, with the Arab nation often supporting its South Asian neighbor in disputes with India. During a February visit, Saudi Arabia’s crown prince, Mohammed bin Salman, promised to invest $20 billion in Pakistan, offering its government a crucial lifeline as it copes with an economic crisis.

But Prince Mohammed has also sought to build closer ties to other countries in Asia, including China and India.

“Saudi Arabia looks at India with much greater hope and optimism than Pakistan,” said Sreeram Chaulia, dean of the school of international affairs at O.P. Jindal Global University near New Delhi. “From the Saudi perspective, India doesn’t need aid. India is a great place where they can make money.”

ImageCreditFrancis Mascarenhas/Reuters

[Saudi Aramco says it’s “ready” for an I.P.O. as it reports its half-year earnings.]

For Reliance, which is run by Asia’s richest man, Mukesh Ambani, the deal is a way to keep moving the company from its roots in energy and chemicals toward faster-growing sectors like telecom, television and retailing.

Using profits from the petroleum side of the empire, Mr. Ambani started an upstart cellphone carrier, Jio, three years ago, and cut prices for consumers to nearly zero. As rivals struggled to respond to the devastating price war, customers flocked to Jio, and today it is India’s biggest mobile phone provider, with 340 million subscribers. Reliance is also India’s biggest retailer, with chains selling everything from groceries to toys.

At the company’s annual meeting on Monday, Mr. Ambani told shareholders that Reliance would soon offer broadband internet services to homes and businesses, again at rates far cheaper than existing offerings. And he announced plans to challenge Amazon’s profitable web services division through a new partnership with Microsoft.

Mr. Ambani’s deal with the Saudis would allow him to reduce the billions of dollars in debt incurred to build all these new businesses while also scoring political points with Mr. Modi. The Modi administration has made several regulatory rulings that have helped Reliance. Mr. Ambani, meanwhile, has supported much of Mr. Modi’s political and economic agenda, including the prime minister’s call last week for Indian companies to invest in Kashmir’s economy.

“The government is laying the foundation of new institutions for business promotion and regulation,” Mr. Ambani told shareholders. “India is rising. No power on earth can stop India from rising higher.”

Prince Mohammed of Saudi Arabia has faced heavy criticism from some quarters for his leadership, including the jailing of dissidents at home and his role in the murder of the journalist Jamal Khashoggi.

Despite that record and Saudi Arabia’s historic ties to Pakistan, Mr. Modi has adopted a practical approach to wooing the oil-rich kingdom.

ImageCreditAdnan Abidi/Reuters

The prime minister welcomed Prince Mohammed in New Delhi right after the prince’s visit to Pakistan in February. The prince told Mr. Modi that the kingdom saw at least $100 billion in investment opportunities in the country. Although no specifics were announced, the Reliance deal was already under discussion and may be one of the opportunities the prince had in mind.

P.M.S. Prasad, a top Reliance executive and board member, said that Saudi Aramco would pay about $15 billion in cash and assumed debt for 20 percent of Reliance’s petroleum and chemicals business, including its fuel stations. About half the money would be paid when the deal closed, which Reliance expected would occur by the end of March, with the remainder paid out over the next two years.

Under the arrangement, Mr. Prasad said, Aramco will supply about 500,000 barrels of oil a day to Reliance’s huge refinery and petrochemical complex in the state of Gujarat and get at least two senior management positions in the petroleum-related businesses and a seat on the parent company’s board.

“This is a strategic partnership,” he said. “We have an aligned vision for growth.”

The deal is still subject to due diligence and government approvals.

Khalid al-Dabbagh, Aramco’s senior vice president for finance, strategy and development, was more cautious. The Reliance deal is “at the very, very early stages,” he said Monday during Aramco’s first-ever conference call to discuss its finances.

Still, Saudi Arabia is keen to invest in India’s energy markets and had previously joined Abu Dhabi and state-owned Indian oil companies in announcing a planned $42 billion refinery on India’s west coast.

India, for its part, is looking to replace Iranian oil, which it can no longer import after President Trump’s embargo against Iran.

“India is a large country with large demand, and it’s a growing demand,” Mr. al-Dabbagh said.


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