RIL outlines plan for O2C business spin off, read to know more. Reliance Industries is in the process of recording its oil-to-chemical (O2C) business in a separate new company that borrowed $ 25-billion from a parent. The move is aimed at unlocking the value of the business through potential stake sales and starting at the next level of the investment cycle with a focus on clean energy. With the approval from the Department and also from the existing exchanges, the RIL said that it will also seek to be given a chance to the shareholders and also to the lenders in the first quarter of the next financial year.
RIL said that it proposes to transfer all of its refineries, petrochemicals and its marketing assets to the O2C business, which includes BP, 74.9% elastomer JV and Sibur, Recron / RP Chemicals Malaysia, a subsidiary company, ethane pipe and all other related goods. The O2C system comes into effect on the scheduled date of January 1, 2021.
The company will transfer $ 40 billion in assets, long-term assets, $ 5 billion and $ 5 billion in non-current debt to the O2C business to account for $ 25 billion in long-term loans and $ 12 billion in revenue from RIL, it means presentation. The RIL expects the separation to end in September.
The reason for the RIL after creating an independent company is to allow the new business to pursue opportunities throughout the O2C price chain by funding itself with the creation of a capital fund and a team of dedicated managers. It said that it promotes value-building through strategic partnerships and that it also attracts dedicated investment reservoirs.
The company went on to say that the management of O2C management will continue to have a RIL, while there will be no revenue cuts or cash flow restrictions and the company expects to maintain its global and domestic investment rate. The O2C restructuring does not make a difference in the RIL’s shareholding and does not affect the combined financial situation, it said.
While the O2C demerger is not expected to have an impact on consolidated numbers, it should improve the view of stock trading in the O2C business. Nomura analyst said that a $ 25 billion to O2C loan at floating interest rates (linked to SBI’s 1-MCLR) will make possible the distribution of potential transactions on O2C more tax-efficient.
The division of O2C’s business into its subsidiary and facilitating a potential stock sale in Saudi Aramco, which is Sweta Patodia, an analyst (financial group of companies) at Moody’s Investors Service has seen will reduce some of RIL’s debt.
In the past, the RIL had anticipated a 20% potential sale of O2C to Saudi Aramco for $ 75 billion, which could have resulted in a $ 15 billion acquisition. Nomura also said that the $ 25 billion high loan shows that Reliance can target more than 20% of the stock market to dedicated investors and PE investors.
Analysts at Morgan Stanley say that through this reunification, RIL will have four growth engines – digital, retail, innovation and new energy. He also said that the RIL’s Oil to Chemicals (O2C) business integration program is a step towards monetizing and accelerating its new energy and material systems for batteries, hydrogen, renewable and carbon-binding – all of which points to the next leg of mass expansion and clarity for the next investment cycle.
Highlighting that the new green energy foray will appeal to investors, analysts see a significant risk to O2C’s earnings and duplication as RIL invests in new energy and technology.