Reliance Industries have announced plans to their oil-to-chemicals (O2C) business into an independent unit with a parent loan of $25 billion beside $12 billion equity, as it seeks to unlock value by selling stakes to global investors such as Saudi Aramco. According to the company presentation filed with the stock exchanges, the reorganization would allow the concentrated pursuit of opportunities across the O2C value chain, boost efficiencies through a self-sustaining capital structure and a committed management team, and attract dedicated pools of investor’s capital.
The O2C business holds the oil refinery and petrochemical assets of Reliance and the fuel retail business. RIL will house only the upstream oil and gas exploration and production businesses, including the KG-D6 block and the financial services, the treasury group and, the legacy textile businesses, after the spin-off, and act as the group’s holding company. The company’s retail business is held by Reliance Retail Venture and the telecom and digital ventures and is dwelling in Jio Platforms.
RIL had previously stated that being a listed company, it could not issue the investor’s shares with differential rights (in other words equity shares with interest linked only to the O2C Company). Therefore, the O2C Company must be transferred to a wholly-owned subsidiary of RIL, in which external investors will invest. The assets of the wholly-owned O2C unit will be financed by an interest-bearing loan, which will be an efficient upstream cash mechanism, including any potential capital receipts, within the unit, the firm said. The 10-year loan for the newly created arm is intended for the purchase of the O2C companies’ assets and comes at a floating interest rate.
In August 2019, RIL agreed to make its telecom venture debt-free upstream of Jio’s debt to 1.08 lakh crore, before inducing investors such as Facebook, Google, and KKR. The gross debt of RIL as of December 2020 was ~2.57 lakh crores. Last year, RIL began work to hive off the O2C unit. The O2C business is valued at $75 billion and has been in talks with Saudi Aramco to sell a 20% stake. The necessary spin-off approvals are expected by the second quarter of the next fiscal year.
