Reliance Industries (RIL) is carving out its oil-to-chemicals (O2C) business into a 100% wholly-owned-subsidiary, clearing the decks for the induction of an international partner, the company said on Tuesday.
RIL had first announced its plan to form the O2C division in 2019, ahead of inducting Saudi Aramco as a minority partner in the unit. RIL has been in talks with Aramco for nearly two years for a 20% stake sale in the O2C unit for $15 billion.
In its scheme of arrangement proposed last September, RIL said it was exploring various opportunities to bring in strategic or other investors in the O2C business, but being a listed company, in terms of Securities and Exchange Board of India (Sebi) Listing Obligations and Disclosure Requirements Regulations, it cannot issue shares with differential rights (equity shares with interest linked to O2C business) to investors.
“Therefore, the O2C undertaking has to be transferred into a wholly-owned subsidiary of RIL, in which the investor(s) will invest,” it had said.
Reliance expects to get all approvals by September for the demerger of the O2C business, which will house RIL’s refining, oil marketing, petchem and polyester businesses.
“We believe this demerger should pave the way for a stake sale in O2C to strategic (talks with Aramco continue) and financial investors. Although O2C’s debt- Ebitda may be on the high side, this may be more tax efficient as any new investor may be issued fresh shares and this cash inflow may be utilized to pay back the loan from the parent,” said CLSA in a note to clients on Tuesday.
RIL has also extended an interest-bearing loan of $25 billion to the O2C business, which will pay floating rate interest linked to one-year State Bank of India marginal cost of funds based lending rate. The loan to the O2C business will be paid as and when strategic investors come in.
“A higher loan of $25 billion indicates that Reliance could consider more than a 20% stake sale to strategic investors and dedicated PE investors,” said brokerage firm Nomura in a note.
Sebi and the stock exchanges have approved the reorganization. The company, however, is yet to get a clearance from its equity shareholders and creditors, the income tax authority and National Company Law Tribunal’s Mumbai and Ahmedabad benches.
Following the reorganization, RIL’s stake in Reliance Retail Ventures will be 85.1% and in Jio Platforms will be 67.3%, RIL said in an investor presentation on its website.
The company plans to build an optimal mix of reliable, lean, and affordable energy using solar, wind, and batteries, it said.
