Reliance may list O2C arm

P Manoj Mumbai | Updated on February 23, 2021

Move aimed at getting financial investors onboard the oil-to-chemicals business

Reliance O2C Ltd, the wholly-owned refining, marketing and petrochemicals subsidiary being carved out of Reliance Industries Ltd (RIL), could be listed.

“Nothing can be ruled out,” a spokesman for RIL said, adding it was difficult to guess when it will happen.

Succession plan

The broad contours of the O2C re-organisation plan unveiled by RIL on Tuesday also strengthens the speculation that Chairman Mukesh Ambani was putting in place a succession plan for his three children – Isha, Akash and Anant – revolving around the three verticals of oil-to-chemicals, digital and retail. The RIL spokesman, however, said it was “not really” the case. “This is to facilitate focussed growth and getting strategic and financial investors into the O2C business,” he said.

Also Read: Reliance Industries Board clears plan to spin off oil-to-chemicals business into a separate entity

The wholly-owned unit’s assets worth $42 billion will be funded by a long-term interest bearing loan of $25 billion by RIL to O2C along with equity of $12 billion, which the company said was an “efficient mechanism to upstream cash, including any potential capital receipts in O2C”.

Oil-to-chemicals is the most valuable part of RIL’s business contributing $40 billion to its overall revenue of $67.1 billion in the nine months of FY21 and EBITDA of $4.9 billion out of the total EBITDA of $13 billion.

Reliance said the separation of the O2C business into an independent unit will not dilute earnings or restrict cash flows or impact the firm’s consolidated financials, investment grade international and domestic credit ratings.

Strategic partnerships

The proposed reorganisation eases the formation of strategic partnerships and stake sales to potential investors focussed on investments in oil-to-chemicals businesses. RIL has been in ongoing discussions with Saudi Arabian Oil Company (Saudi Aramco) to sell a minority stake in its oil-to-chemicals businesses, which, if successful, should lead to further deleveraging of RIL, Fitch Ratings said in a note.

RIL said it will continue to retain management control of O2C subsidiary post rejig, which is expected to be completed by the second quarter of FY22.

The planned reorganisation will not alter the current shareholding of RIL.

It could trigger a potential re-rating of the stock reflecting value of each growth business.

RIL’s de-merger plan for oil-to-chemicals business is a step towards monetisation and acceleration of its new energy and material plans into batteries, hydrogen, renewables and carbon capture - all of which point to the next leg of multiple expansion and clarity on the next investment cycle, according to Morgan Stanley.

“With this re-organisation, RIL will have four growth engines — digital, retail, new materials and new energy. While the market appreciates the value for the first two businesses, we see significant upside risk to earnings and multiples for O2C as RIL invests in new energy/technology,” Morgan Stanley analyst Mayank Maheshwari wrote in a February 23 note.


Published on February 23, 2021

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