I woke up this morning to see the news about the Aramco-RIL deal plastered on the headlines of The Economic Times. I am still processing the implications of this mega deal in my head, but here are some of my quick thoughts on what this deal means – for RIL, for Aramco, and for India.

For Reliance Industries Limited

First and foremost, it signals a massive shift in RIL’s general approach of undertaking its projects and growth initiatives on its own, funded either by debt or by capital markets. This deal, taken together with its recently announced JV with BP for petro-retailing and its recent investment from Brookfield for the towers business, means that RIL management is quite clearly recognizing a new paradigm wherein partnerships with global giants in various verticals will bring huge stockpiles of capital along with tremendous expertise to the table for RIL.

Secondly, such a strategy would also obviously greatly pare down the debt exposure of the group. This is also consistent with Mukesh Ambani’s statement yesterday that RIL would become a zero net debt company in 18 months. This is again, a very interesting shift because RIL has historically relied a lot on debt (its current debt stands at $22 billion, according to RIL management), and this new approach of openness to partnerships will help RIL pursue big growth without a mounting debt burden.

Thirdly, and most importantly, this deal also indicates that RIL management places most future value on its oil-to-chemicals division and is expected to focus most of its future growth plans in this division rather than on its fuels division. I say this the most important implication because this demonstrates RIL’s keen awareness of the global pulse that is rapidly veering towards electric vehicles replacing fossil-fuel-based vehicles.

Fourthly, this deal is also a strong signal that RIL will be moving away from its historical model of being an operating company to a holding company model akin to a Tata Sons, for example, which makes a lot of sense to me, as it can help RIL unlock a lot more value in its various businesses.

Lastly, this new strategy comes at a cost, obviously. Aramco will, reportedly, get one board seat at RIL, and “two board seats in the board of the oil-to-chemicals division of RIL” (whatever that means!). Naturally, Aramco isn’t paying $15 billion for a 20% stake to be an idle shareholder, so RIL will need to get used to having a powerful strategic partner – even though, Aramco won’t be a shareholder at RIL level, they will have a very influential voice on the board.

For Aramco

Aramco, for all its size and domination in the global markets (I’m told its profits exceed those of Apple, Shell and Exxon-Mobil combined!), has never had a meaningful presence in India. This deal gives it a HUGE inroad into India just at the right time when the nation is gearing up for its next big phase of growth. And in partnering with RIL, Aramco gets one of the very best local partners to navigate and learn about the Indian market.

For India

Firstly, this deal will give a major fillip to the Indian economy if and when it goes through. Not only will it bolster the FDI figures for the year (unlike the Flipkart deal of last year, where most of the money went to foreign shareholders, this one will see actually see $15 billion come into the Indian economy), but it will generally create a very positive and enthusiastic buzz around the Indian economy, which we can surely use right now.

Secondly, the massive planned retirement of debt as announced by RIL and funded in no small part by this deal, will help the banking sector in India as it will free up a lot of capital to be lent to other businesses. It would also de-risk the banks from having such a large exposure to one group.

Lastly, the very fact that RIL is shifting its big efforts and capital away from fuels and on to oil-to-chemicals demonstrates that they believe that the Indian market too will be undergoing the EV revolution. And that’s great news indeed for our country and for the environment.