Reliance O2C Ltd. - Why RIL’s Refining And Petrochemicals Businesses Are Moving To This New Subsidiary 

The creation of Reliance O2C Ltd. marks an important step in the restructuring of the oil-to-telecom major Reliance Industries Ltd. so as to bring more investors on board and reduce debt. RIL has already disclosed its ongoing negotiation with Saudi Aramco for a 20 percent stake sale in the Indian company's legacy energy business. Also, in April, Facebook agreed to invest close to $6 billion in Reliance's Jio Platforms for a 10 percent stake.

Reliance O2C was incorporated on Jan. 24, 2019 with the intent to transfer to it RIL's entire oil to chemicals business, a stock exchange filing said. This core business on which the company was founded did a turnover of Rs 2,71,792 crore in the nine months ended Dec. 31, 2019, which amounts to 99.36 percent of the total turnover of RIL, according to the filing.

At its meeting held on April 30, RIL's board approved a scheme of arrangement to effect the transfer.

The highlights of the scheme, as disclosed in the filing, are;

RIL's O2C undertaking comprises entire oil-to-chemicals business consisting of refining, petrochemicals, fuel retail and aviation fuel (majority interest only) and bulk wholesale marketing businesses together with its assets and liabilities.

The O2C undertaking will be transferred to Reliance O2C Ltd. as a going concern, on slump sale basis, for a lump sum consideration equal to the income tax net worth of the O2C Undertaking as on the appointed date of the scheme.

Rationale Of Scheme

In its filing RIL explains the reasons for the transfer of its core business to a wholly-owned subsidiary;

• The O2C business will attract a distinct set of investors and strategic partners as the nature of risk and returns involved in it are distinct from those of company's other businesses (retail, telecom).
• RIL has been exploring various opportunities to bring in strategic and other investors in the O2C business.
• The creation of a wholly-owned subsidiary to old the O2C assets will facilitate such investments.

In its earnings statement on April 30, RIL said the “the due-diligence by Saudi Aramco for the planned investment in the O2C business is on track as both the parties are committed and actively engaged.” Yet, earlier in the year the deal had run into a hurdle as the Indian government objected to the stake sale. The falling price of oil has also hurt Saudi Aramco's financials, soon after the company listed in what was the world's biggest initial public offering.

The business restructuring and courting of strategic and financial investors is towards RIL's goal to become net debt free company in 9 months.