Reliance to launch O2C business as separate arm
To float a $25-bn loan from parent group for running the spinoff
New Delhi: Billionaire Mukesh Ambani's Reliance Industries has announced the contours of carving out of 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 like Saudi Aramco.
The reorganisation will enable the focused 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 unit holds Reliance's oil refinery and petrochemical assets and retail fuel business but not upstream oil and gas producing fields such as KG-D6 and textiles business. Once completed, Reliance Industries Ltd (RIL) - the company founded by Dhirubhai Ambani in the late 1960s - will house only the upstream oil and gas exploration and production business, including the KG-D6 block, 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 Ltd and telecom and digital ventures are nested in Jio Platforms Ltd. RIL holds 85.1 per cent of Reliance Retail and 67.3 per cent of Jio Platforms. The rest it had sold to global investors including Facebook Inc and Google for over Rs 2 lakh crore. 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.
RIL will provide a loan of $25 billion to the O2C subsidiary at floating interest rate with the subsidiary having about $42 billion of assets (28 per cent of consolidated assets). RIL is giving a $25 billion, 10-year loan to this newly created arm for buying the assets of the O2C businesses.
RIL is also working on a structure wherein the interest cost that the O2C arm will bear for buying the assets will be equal to the interest cost that parent RIL bears for its outstanding loans. RIL started work on hiving off the O2C business into a separate unit last year for a possible stake sale to companies such as Saudi Aramco.