Saudi Aramco will invest in the oil-to-chemicals business of Reliance Industries Ltd., nearly two years after the world’s largest crude producer showed interest in the Indian group's energy division.
"I expect our partnership to be formalised in an expeditious manner during this year (FY22)," Mukesh Ambani, chairman and managing director at the oil-to-telecom conglomerate, said in his address to shareholders at the company's 44th annual general meeting.
Yasir Al-Rumayyan, chairman of Saudi Aramco and governor of the Kingdom’s wealth fund—the Public Investment Fund—will join the board of RIL as an independent director as part of the deal.
Ambani, at RIL’s 2019 AGM, had said Saudi Aramco would buy a 20% stake in its O2C business for $15 billion. Since then, however, the negotiations have been dragging due to the crude producer’s initial public offer and Covid-19 pandemic-led restrictions.
In February 2021, Reliance had presented a pro-forma balance sheet of Reliance O2C, indicating its equity and debt value at $42 billion. The parent had said Reliance O2C would have $12 billion (Rs 87,600 crore) in equity, $25 billion (Rs 1,82,500 crore) in loans from RIL and $5 billion (Rs 36,500 crore) in non-current liabilities.
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In the fiscal ended March 2021, RIL had initiated the process of reorganising its O2C business into a wholly owned subsidiary, hoping that it would facilitate value creation through strategic partnerships and attract dedicated pool of investor capital.
The O2C business includes refining, petrochemicals, fuel retailing through Reliance BP Mobility Ltd., aviation fuel and bulk wholesale marketing, besides transportation fuels, polymers, polyesters and elastomers.
The new division plans to maximise crude to chemicals conversion, and create a sustainable growth business.
In 2020-21, RIL’s O2C business saw its revenue decline 29% to Rs 3.2 lakh crore, as average crude and feedstock prices dropped. Its Ebitda stood at Rs 38,170 crore during the period.
Overall production meant for sale reduced from 71 million tonnes to 63.6 million tonnes. Most of the decline came in transportation fuels due to global demand destruction.
The O2C arm had assets worth Rs 3.58 lakh crore and liabilities of Rs 44,284 crore as of March 2021. The capex incurred during the year was Rs 7,867 crore, according to RIL’s annual report.
While RIL standalone, comprising O2C, and oil & gas exploration, will have non-current borrowings at Rs 1.89 lakh crore and current borrowing of Rs 33,152 crore, it’s unclear how much debt will be transferred to the new O2C company.
To be sure, the balance sheet for O2C is still not released as the scheme of arrangement is yet to receive approval from the National Company Law Tribunal. The approval is expected by the second quarter of fiscal ending March 2022. The appointed data of the scheme is Jan. 1. 2021.
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