Reliance Industries Limited (RIL) is carving out its Oil-to-Chemicals (O2C) business into an independent subsidiary that will facilitate the entry of strategic investors and accelerate its move towards becoming a powerhouse of clean energy and new materials, the company said on February 23.
It will retain 100 percent management control in the subsidiary which will take charge of all of RIL’s refining, marketing and petrochemicals assets that include the world’s largest refining complex at Jamnagar and global-scale petrochemical units, it said.
The promoter group will continue to hold a 49.14 percent stake in the O2C business after the reorganisation, which will result in no change in shareholding of the company, RIL said in a note to stock exchanges.
The existing O2C operating team will move to the newly created subsidiary with the transfer of business, but there will be no dilution of earnings or any restriction on the cash flows, RIL said.
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The move is expected to facilitate value creation through strategic partnerships, including the proposed deal with Saudi Aramco, and help attract dedicated pools of investor capital. The company said that talks with Aramco were still on. The world's largest crude oil exporter Saudi Aramco is in the process of picking up a 20 percent stake in RIL's O2C business.
RIL has also extended an interest-bearing loan of $25 billion to the O2C business. The O2C business will pay floating rate interest linked to one-year SBI MCLR rate. The loan to the O2C business will be paid as and when the strategic investors come in.
RIL said it has already received the nod from the Securities and Exchange Board of India (Sebi) and stock exchanges for the reorganisation. However, it is yet to get a clearance from equity shareholders and creditors, the income tax authority and National Company Law Tribunal (NCLT) benches in Mumbai and Ahmedabad.
Reliance expects various approvals for the reorganisation to be in place by the second quarter of FY22.
Read: What the RIL oil-to-chemicals spin-off means for company, investors
Following this reorganisation, RIL's stake in Reliance Retail Ventures will be 85.1 percent and that in Jio Platforms will be 67.3 percent. The proposed O2C subsidiary will include the fuel retail subsidiary in which RIL has a 51 percent stake and the remaining 49 percent belonging to BP plc.
The company’s presentation suggested that RIL and its O2C subsidiary will work together to move towards the net carbon-zero targets by 2035. To achieve this, the O2C business will invest in the next generation carbon capture and storage technologies to convert carbon dioxide into useful products and chemicals. It will also accelerate the transition from traditional carbon-based fuels to a hydrogen economy, RIL said.
The company said this development would have no impact on its consolidated financial position, cost of capital, borrowings, investment-grade international, and domestic AAA credit ratings.
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According to a report by Morgan Stanley, the demerger plan is a step towards monetisation and acceleration of new energy and material plans into batteries hydrogen, renewables and carbon capture, which points towards the next leg of multiple expansion and clarity on the next investment cycle.
"We do not see the reorganisation impacting consolidated financials," Morgan Stanley added in its report. RIL had $5 billion of net debt and $11 billion in non-current liabilities including spectrum, creditors among others as of January this year.Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd that publishes Moneycontrol.com