Reliance Industries Limited announced the demerger of its oil-to-chemicals (O2C) business into a wholly-owned subsidiary. “Reorganisation of O2C business facilitates participation by strategic investors and marquee sector-focused investors,” it added. In a presentation to investors, the Mukesh Ambani-led company stated, it is looking at completing the process by FY 2022.
The presentation stated, “Consent process to be completed by Q1FY22, NCLT approval expected by Q2FY22.” The company expects to receive orders from NCLT Mumbai and NCLT Ahmedabad by the second quarter of FY 2022, after meeting with creditors and shareholders in the first quarter of FY 2022. The O2C scheme was filed with NCLT on 3 February 2021. While RIL and O2C business will become two different entities, the company ensures that both will have “close interplay.”
RIL will focus on new energy and new materials business “towards its vision of clean and green energy development.” The company also plans to develop or introduce new technologies to reduce the carbon footprint for O2C business. RIL stated in its presentation that RIL and O2C will work together to achieve net carbon zero by 2035.
RIL has also extended an interest-bearing loan of $25 billion to the O2C business. The O2C business will pay a floating rate interest linked to the one-year SBI MCLR rate. The loan to the O2C business will be paid as and when the strategic investors come in.
RIL said it has already received a nod from the Securities and Exchange Board of India (Sebi) 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.
O2C business will focus on carbon capture by investing in next-generation carbon capture and storage technologies to convert CO2 into useful products and chemicals and accelerate the transition from traditional carbon-based fuels to a hydrogen economy.
The promoter group will continue to hold a 49.14% stake in the O2C business after the reorganisation and that the process will result in no change in shareholding of the company. The existing O2C operating team will move to the newly created subsidiary with the transfer of business, but there will be no dilution of earnings or any restriction on the cash flows, RIL said. According to the conglomerate, all of its refining, marketing and petrochemical assets will be transferred to the O2C subsidiary.
The company is expected to retain its investment-grade international, and domestic AAA credit ratings, even after hive off. It maintained an Overweight rating on the stock with a target price of Rs 2,252 per share. At 9:40 am, the shares of Reliance Industries traded 1.41% higher at Rs 2,035.65 apiece on the BSE as compared to a 0.32% gain on the benchmark Sensex.
According to a report by Morgan Stanley, the demerger plan is a step towards monetisation and acceleration of new energy and material plans into batteries hydrogen, renewables and carbon capture, which points towards the next leg of multiple expansion and clarity on the next investment cycle.