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Reliance splits off O2C business ahead of $15 billion Aramco deal

Dubai - In a late-night filing to stock exchanges, the conglomerate said the reorganisation would enable a focused pursuit of opportunities across the O2C value chain, improved efficiencies through a self-sustaining capital structure

The move by India's most valuable company, Reliance Industries Limited, to attract global investors like Saudi Aramco made a crucial headway with RIL announcing the demerger of its oil-to-chemicals (O2C) business into a wholly-owned subsidiary.

In a late-night filing to stock exchanges, the conglomerate said the reorganisation would enable a focused pursuit of opportunities across the O2C value chain, improved efficiencies through a self-sustaining capital structure.

On Tuesday, RIL said it had received an approval from the Securities and Exchange Board of India and stock exchange to create the subsidiary.

"Reorganisation of O2C business facilitates participation by strategic investors and marquee sector-focused investors," it added.

Analysts said the demerger plans gained momentum after RIL resumed talks with the Saudi oil major over a 20 per cent stake sale, after months of pause caused by the pandemic. RIL has acknowledged that there are ongoing talks with Aramco for a deal.

In August of 2019, RIL chairman Mukesh Ambani first announced his plans to sell a 20 per cent stake in the O2C business to Aramco for $15 billion at an implied $75 billion valuation. Since then, Goldman Sachs and Citi have been working with Reliance and Aramco.

Once the demerger happens, RIL will house only the upstream exploration and production business, including the KG-D6 block, financial services, group treasury and the legacy textile businesses, and act as a holding company of the group.

The O2C business will include oil-to-chemicals business consisting of its refining and petrochemicals assets, fuel retail (51 per cent in a JV with BP), global subsidiaries in UK, US among others including its JV with Sibur, bulk and wholesale marketing businesses among others and will get hived off into a step-down subsidiary via a slump sale, to be initially wholly owned by RIL.

RIL owns one of the world’s largest and most integrated O2C complexes in Gujarat. The vertical historically has been the cash cow for the entire group, contributing 62 per cent of the revenue and 58 per cent of the total operating profit in FY20.

RIL is giving a $25 billion, 10-year loan to this newly created arm for buying the assets of the 02C businesses. Even though the O2C assets will move into a new arm, its debt will continue to sit inside RIL. In August 2019, RIL had agreed to upstream Rs1.08 trillion of Reliance Jio’s debt to make its telecom venture debt-free, ahead of inducting strategic and financial investors including GCC sovereign wealth funds, Facebook, Google, KKR, TPG, PIF among many others.

As of December 2020, RIL’s gross debt stood at Rs 2.57 trillion ($35.2 billion) at the end of December 2020 compared with Rs3.36 trillion ($44 billion) in FY20.business.

— issacjohn@khaleejtimes.com