RIL’s O2C Business Restructuring Paves Way For Value Unlocking: Brokerages

Reliance Industries Ltd. has initiated the process to carve out its new oil-to-chemicals business into an independent unit, following through on a proposal announced in April and readying the unit for a potential stake sale.The reorganisation is subject to statutory approvals and expected to complete by the second quarter of 2021-22, India’s largest company by market value said in a presentation accompanying an exchange filing. The new entity—a 100% subsidiary of RIL—will comprise the refining, petrochemicals businesses, fuel retail joint venture with BP and trading operations.The subsidiary will be self-funded and the parent will transfer the assets for a $25-billion loan, besides $12-billion equity.Oil-to-chemicals contributed more than 60% in the last financial year to the group’s revenue that’s been lately pivoting toward consumer businesses such as technology and retail.Shares of Reliance Industries traded 1.3% higher as of 1 p.m. on Tuesday compared with a 0.31% gain in the Nifty 50.Here are some highlights from analyst reports…Morgan StanleyThe demerger plan for oil-to-chemicals business is a step towards monetisation and acceleration of RIL’s new energy and material plans into batteries, hydrogen, renewables and carbon capture.RIL is embarking on its journey to address the $800 billion in organised retail and e-commerce, $300 billion in chemicals, and $50 billion in new energy (renewables) as demand shifts from oil to alternative fuels.RIL will have four growth engines post reorganisation — digital, retail, new materials, and new energy.Do not see the reorganisation impacting consolidated financials.Talks have restarted on a potential stake sale in RIL’s O2C business to Saudi Aramco. Valuations/asset prices are expected to rebound to levels seen in August 2019 with a much-improved industry outlook.Kotak SecuritiesThe proposed O2C reorganisation may facilitate participation by strategic as well as financial investors.The O2C entity will focus on carbon capture and hydrogen production technologies.The O2C entity will be able to efficiently upstream cash through dividends, interest, and debt repayment, which may include any receipts from strategic investment in the O2C business.The reorganisation will be tax neutral for RIL and it will not impact consolidated cash flows. It will help RIL to retain its credit ratings.RIL will retain new energy and new materials businesses with a focus to develop green energy ecosystem and adopt new technologies to reduce carbon footprint.

RIL’s O2C Business Restructuring Paves Way For Value Unlocking: Brokerages

Reliance Industries has initiated the process to carve out its new oil-to-chemicals business into an independent unit.

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RIL’s O2C Business Restructuring Paves Way For Value Unlocking: Brokerages

Reliance Industries has initiated the process to carve out its new oil-to-chemicals business into an independent unit.

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