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Reliance Industries to carve out O2C business into 100% subsidiary
23 Feb '21
3 min read
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Reliance Industries Limited (RIL) is carving out its oil-to-chemicals (O2C) business into an independent subsidiary, the company recently announced, saying it will retain 100 per cent management control of the new subsidiary. The existing O2C team will move to the new subsidiary with the transfer of business, but there will be no dilution of earnings or any restriction on the cash flows.
In a notification to exchanges, RIL said that the promoter group will continue to hold a 49.14 percent stake in the O2C business after the reorganisation and that the process will result in no change in shareholding of the company.
According to the conglomerate, all of its refining, marketing and petrochemical assets will be transferred to the O2C subsidiary.
The move is expected to facilitate value creation through strategic partnerships, including the deal with Saudi Aramco, and attracting dedicated pools of investor capital. The company said that talks with Aramco are still on. The world's largest crude oil exporter Saudi Aramco is in the process of picking up a 20 per cent stake in RIL's O2C business.
RIL has also extended an interest-bearing loan of $25 billion to the O2C business. The loan to the O2C business will be paid as and when strategic investors come in.
RIL said it has already received a nod from the Securities and Exchange Board of India and stock exchanges for the reorganisation. However, it is yet to get a clearance from equity shareholders and creditors, the income tax authority and National Company Law Tribunal (NCLT) benches in Mumbai and Ahmedabad.
Reliance expects various approvals for the reorganisation to be in place by the second quarter of the nest fiscal.
Following this reorganisation, RIL's stake in Reliance Retail Ventures will be 85.1 per cent and that in Jio Platforms will be 67.3 per cent. The proposed O2C subsidiary will include the fuel retail subsidiary in which RIL has a 51 per cent stake and the remaining 49 per cent belonging to BP plc.
To move towards net carbon zero targets by 2035, the O2C business will invest in the next generation carbon capture and storage technologies to convert carbon dioxide into useful products and chemicals. It will also accelerate the transition from traditional carbon-based fuels to a hydrogen economy, RIL said.
The company said this development will have no impact on its consolidated financial position, cost of capital, borrowings, investment-grade international, and domestic AAA credit ratings.
In a notification to exchanges, RIL said that the promoter group will continue to hold a 49.14 percent stake in the O2C business after the reorganisation and that the process will result in no change in shareholding of the company.
According to the conglomerate, all of its refining, marketing and petrochemical assets will be transferred to the O2C subsidiary.
The move is expected to facilitate value creation through strategic partnerships, including the deal with Saudi Aramco, and attracting dedicated pools of investor capital. The company said that talks with Aramco are still on. The world's largest crude oil exporter Saudi Aramco is in the process of picking up a 20 per cent stake in RIL's O2C business.
RIL has also extended an interest-bearing loan of $25 billion to the O2C business. The loan to the O2C business will be paid as and when strategic investors come in.
RIL said it has already received a nod from the Securities and Exchange Board of India and stock exchanges for the reorganisation. However, it is yet to get a clearance from equity shareholders and creditors, the income tax authority and National Company Law Tribunal (NCLT) benches in Mumbai and Ahmedabad.
Reliance expects various approvals for the reorganisation to be in place by the second quarter of the nest fiscal.
Following this reorganisation, RIL's stake in Reliance Retail Ventures will be 85.1 per cent and that in Jio Platforms will be 67.3 per cent. The proposed O2C subsidiary will include the fuel retail subsidiary in which RIL has a 51 per cent stake and the remaining 49 per cent belonging to BP plc.
To move towards net carbon zero targets by 2035, the O2C business will invest in the next generation carbon capture and storage technologies to convert carbon dioxide into useful products and chemicals. It will also accelerate the transition from traditional carbon-based fuels to a hydrogen economy, RIL said.
The company said this development will have no impact on its consolidated financial position, cost of capital, borrowings, investment-grade international, and domestic AAA credit ratings.
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