Reliance Industries has announced that it plans to carve out its oil-to-chemicals (O2C) business into an independent unit with a $25-billion loan from the parent, as it looks to unlock value by selling stakes to global investors such as Saudi Aramco.
The reorganisation will ‘enable the focussed pursuit of opportunities across the O2C value chain, improve efficiencies through self-sustaining capital structure and a dedicated management team, and attract dedicated pools of investor capital’, according to a company presentation filed with the stock exchanges.
The O2C business holds Reliance’s oil refinery and petrochemical assets and the retail fuel business. Post spin-off, Reliance Industries Ltd (RIL) will house only the upstream oil and gas exploration and production business, including the KG-D6 block, and the financial services, group treasury and the legacy textile businesses, and act as a holding company of the group. The retail business is held in Reliance Retail Ventures and the telecom and digital ventures are nested in Jio Platforms.
The wholly-owned O2C unit’s assets will be funded by the interest-bearing loan, which will be an “efficient mechanism to upstream cash, including any potential capital receipts,” in the unit, the firm said.
The 10-year loan to the newly created arm is meant for purchase of the assets of the O2C businesses and comes at a floating rate of interest.
In August 2019, RIL had agreed to upstream ₹1.08 lakh crore of Jio’s debt to make its telecom venture debt-free, ahead of inducting investors such as Facebook, Google and KKR. As of December 2020, RIL’s gross debt was ₹2.57 lakh crore.
RIL began work on hiving off the O2C unit last year. It values the O2C business at $75 billion and has been in talks with Saudi Aramco for sale of 20% stake.
Necessary approvals for the spin-off are expected by the second quarter of the next fiscal.