RIL’s O2C Business Restructuring Paves Way For Value Unlocking: Brokerages 

Reliance Industries Ltd. has initiated the process to carve out its new oil-to-chemicals business into an independent unit, following through on a proposal announced in April and readying the unit for a potential stake sale.

The reorganisation is subject to statutory approvals and expected to complete by the second quarter of 2021-22, India’s largest company by market value said in a presentation accompanying an exchange filing. The new entity—a 100% subsidiary of RIL—will comprise the refining, petrochemicals businesses, fuel retail joint venture with BP and trading operations.

The subsidiary will be self-funded and the parent will transfer the assets for a $25-billion loan, besides $12-billion equity.

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.

Shares of Reliance Industries traded 1.3% higher as of 1 p.m. on Tuesday compared with a 0.31% gain in the Nifty 50.

Here are some highlights from analyst reports…

Morgan Stanley

• The demerger plan for oil-to-chemicals business is a step towards monetisation and acceleration of RIL’s new energy and material plans into batteries, hydrogen, renewables and carbon capture.
• RIL is embarking on its journey to address the $800 billion in organised retail and e-commerce, $300 billion in chemicals, and $50 billion in new energy (renewables) as demand shifts from oil to alternative fuels.
• RIL will have four growth engines post reorganisation — digital, retail, new materials, and new energy.
• Do not see the reorganisation impacting consolidated financials.
• Talks have restarted on a potential stake sale in RIL’s O2C business to Saudi Aramco. Valuations/asset prices are expected to rebound to levels seen in August 2019 with a much-improved industry outlook.

Kotak Securities

• The proposed O2C reorganisation may facilitate participation by strategic as well as financial investors.
• The O2C entity will focus on carbon capture and hydrogen production technologies.
• The O2C entity will be able to efficiently upstream cash through dividends, interest, and debt repayment, which may include any receipts from strategic investment in the O2C business.
• The reorganisation will be tax neutral for RIL and it will not impact consolidated cash flows. It will help RIL to retain its credit ratings.
• RIL will retain new energy and new materials businesses with a focus to develop green energy ecosystem and adopt new technologies to reduce carbon footprint.