RIL to spinoff O2C unit with $25 billion loan
Separation could help revive stake sale to Aramco
Reliance Industries Ltd has started carving out its new oil-to-chemicals (O2C) operation into an independent unit with a $25 billion loan from the parent, as billionaire Mukesh Ambani steps up efforts to unlock the value of his businesses.
The wholly owned 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, according to a presentation filed with the stock exchanges.
Oil-to-chemicals contributed more than 60 per cent in the last financial year to the group's revenue that's been lately pivoting toward consumer businesses such as technology and retail. Splitting the business will make it easier for Ambani to bring in investors and help expedite a proposed stake sale to Saudi Arabian Oil Co.
Creating the unit "facilitates participation by strategic and financial investors," Reliance said. It expects the separation to be completed by September. Approvals have been received from the markets regulator and stock exchanges, and the company will seek a nod from shareholders and creditors in the first quarter of FY22.
Ambani amassed more than $27 billion last year from global investors,
including Facebook Inc and Google through stake sales in his retail and digital ventures, turning Reliance net-debt-free.
Reliance has floated separate units twice earlier for funding two refineries on the west coast. The entities were merged with the parent on the completion of the plants, which can together now process 1.4 million barrels of crude daily, making it the world's biggest refining complex.
Once the spin-off is completed, Reliance Industries will house only the upstream oil and gas exploration and production business, including the KGD6 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 and telecom and digital ventures are nested in Jio Platforms.
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 for over Rs 2 lakh crore.
RIL will provide the $25 billion loan to the O2C subsidiary at floating interest rate for 10 years. The subsidiary has about $42 billion of assets (28 per cent of consolidated assets).
In August 2019, RIL had agreed to upstream Rs 1.08 lakh crore of Jio's debt to make its telecom venture debt-free, ahead of inducting strategic and financial investors like Facebook, Google and KKR.
As of December 2020, RIL's gross debt stood at Rs 2.57 lakh crore.
Even though the O2C assets will move into a new arm, its debt will continue to sit inside RIL.
The O2C unit also houses the firm's Singapore and the UK-based oil trading subsidiaries and marketing subsidiary, Reliance Industries Uruguay Petroquimica SA.
It also houses
Reliance
Ethane Pipeline Limited that operates a pipeline between Dahej in Gujarat and Nagothane in Maharashtra as well as a 74.9 per cent stake that Reliance holds in the joint venture with Sibur.
It's very large ethane carriers, gas pipelines such as one that transports coalbed methane from its coal bed methane (CBM) blocks, overseas oil and gas asset holding company Reliance Industries (Middle East) DMCC, and domestic exploration and production assets would not form part of the O2C unit.
Also, RIL's textiles business as operated out of the Naroda site, Baroda township and land, including cricket stadium, Jamnagar power assets, and Sikka Ports and Terminals Limited would also not be part of the O2C unit.
RIL owns and operates twin oil refineries at Jamnagar in Gujarat, with a combined capacity of 68.2 million tonnes per annum.
It is also the country's largest petrochemical manufacturer with units at Jamnagar, Dahej, Hazira, Nagothane, Vadodara, Patalganga, Silvassa, Barabanki, and Hoshiarpur.
The company holds a 66.6 per cent stake in the KG-D6 block where it is investing about $5 billion in developing a second set of gas discoveries along with BP.
It also has a similar stake in the NEC-25 block in the Bay of Bengal and operates two CBM blocks in MP. These upstream assets are not part of the O2C unit.