Reliance to spin off O2C ops with US$25bil loan


MUMBAI: Reliance Industries Ltd (RIL) has started carving out its new oil-to-chemicals (O2C) operation into an independent unit with a US$25bil loan from the parent, as billionaire Mukesh Ambani steps up efforts to unlock the value of his businesses.

The wholly owned unit’s assets will be funded by the interest-bearing loan, which will be an “efficient mechanism to upstream cash, including any potential capital receipts, ” in the unit, according to a company presentation filed with the stock exchanges.

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.

Splitting the business will make it easier for Ambani to bring in investors and help expedite a proposed stake sale to Saudi Arabian Oil Co.

“With this reorganisation, RIL will have four growth engines – digital, retail, new materials and new energy, ” Morgan Stanley analyst Mayank Maheshwari wrote in a Feb 23 note.

“While the market appreciates the value for the first two businesses we see significant upside risk to earnings and multiples for O2C as RIL invests in new energy/technology.”

Shares of Reliance had advanced 1.6% to 2,040 rupees per share as of 11:33am in Mumbai yesterday, outstripping the rise in the benchmark S&P BSE Sensex.

Creating the unit “facilitates participation by strategic and financial investors for value discovery and unlocking, ”

Reliance Industries said in the presentation. It expects the separation to be completed by September.

Approvals have been received from the markets regulator and stock exchanges, and the company will seek a nod from shareholders and creditors in the first quarter of the year starting April, it said.

Reliance’s “separation of its O2C business to a subsidiary will facilitate a potential stake sale to Aramco, possibly enabling a further reduction” in its net debt, Sweta Patodia, an analyst at Moody’s Investors Service said in an e-mail. — Bloomberg

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