Reliance Industries and Aramco have scrapped their agreement under which the Saudi oil giant was supposed to pick up a 20 per cent stake in the oil-to-chemical business – a deal that the two sides have pursued since August 2019.

The announcement signalling the decision to abandon the non-binding letter of intent that the two sides signed two years ago came late Friday night.

Reliance has also decided to drop plans to spin off the O2C business and will now withdraw the proposal filed before the National Company Law Tribunal (NCLT) which was the first step to seek approvals for the separation.

The announcement said both parties have decided to ‘re-evaluate’ the proposed investment in the O2C business. Under the terms of the agreement, Aramco was supposed to acquire the 20 per cent stake in the O2C business for $15 billion, thereby valuing the demerged business at $75 billion.

Talks dragged on between the two sides even after the global pandemic broke out amid speculation that Aramco had started to baulk at the price even as it reviewed its investment strategy in India.

Oil prices had fallen sharply after the Covid-19 pandemic broke out and this had cast a cloud on the deal. But hopes were re-ignited in the middle of this year when reports suggested that the two sides had resumed discussions.

With oil prices starting to rally once again, there was a sense of optimism that the deal would finally go through – a view that gained credence when Saudi Aramco chairman Yasir al-Rumayyan was appointed as an independent director on the RIL board.

The RIL statement said that over the past two years, both sides had made significant efforts in carrying out a process of due diligence despite Covid restrictions.

“Due to the evolving nature of RIL’s business portfolio, Reliance and Saudi Aramco have mutually determined that it would be beneficial for both to re-evaluate the proposed investment in O2C business in light of the changed context. Consequently, the current application with the NCLT for segregating the O2C business from RIL is being withdrawn,” it added.

RIL, however, added that it would continue to be Aramco’s preferred partner for investments in India’s private sector. Reliance will continue to collaborate with Aramco and its subsidiary Saudi Basic Industries Corporation (SABIC), the chemical manufacturing company, for investments in Saudi Arabia and isn’t ruling out a partnership at a later date.

The key assets that were to be part of the O2C business were RIL’s refining and petrochemical plants, fuel retail marketing joint venture (in which BP holds 49 per cent and RIL the rest), and other midstream businesses.

RIL had filed application for the demerger with the NCLT on February 3 and approval was expected shortly.

Analysts at Bernstein had recently valued the O2C business of RIL at a relatively lower valuation of $ 69 billion.

Sources said the latest development should also be seen in the context of RIL announcing ambitious plans in new energy and materials segments which are also linked to the O2C business.

They added that RIL may have been demanding a higher valuation for these businesses and that could have been the stumbling block that led to the cancellation of the O2C deal. They added that RIL could now look to bring in other partners into its downstream business.

At its annual general meeting, RIL chairman Mukesh D. Ambani had announced the development of Dhirubhai Ambani Green Energy Giga complex at Jamnagar facility, which incidentally was to be part of the 02C business. It will rank among the largest integrated renewable energy manufacturing facilities in the world with an integrated solar photovoltaic module factory for the production of solar energy, an advanced energy storage battery factory for the storage of intermittent energy, an electrolyser factory for the production of green hydrogen and a fuel cell factory to convert hydrogen into motive and stationary power.

Market circles added that the RIL stock could come under pressure when trading resumes on Monday as investors were anticipating Aramco’s investment in the O2C business once the two sides resolved the sticking point over valuation.

The RIL stock has been under pressure in recent days with observers suggesting that there were no other near-term upside triggers for the stock barring the Aramco deal. On Thursday, the RIL stock ended at Rs 2472.75, a gain of 0.35 per cent over the previous close.