RIL to spin off O2C business ahead of stake sale to Saudi Aramco
26 Feb 2021
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Reliance Industries Ltd (RIL} has initiated a demerger process for its oil-to-chemicals {O2C} business, as the Mukesh Ambani-led firm looks to unlock value for investors ahead of sale of stake in its refining business to Saudi Aramco
The move is part of the company’s `RIL 2.0’ strategy, under which the group will metamorphise into a digital technology conglomerate with interests in telecom, wireless broadband, e-commerce and other emerging technologies.
The strategy shift is also in tune with the global call for adaption of sustainable energy as fossil fuels add to global warming. The creation of a separate arm for the O2C business with a dedicated management team mzy see another round of fund raising by from strategic global investors who are keen to lap up the growing Indian market.
RIL raised a whopping $27 billion for its digital and retail verticals in pandemic hit 2020 to drain off excessive debt from its balance sheet.
In August 2019, the oil-to-retail conglomerate announced plans to divest a 20 per cent stake to Saudi Aramco in the O2C business at an enterprise value of $75 billion.
RIL is planning to gradually reduce its carbon footprint and be net carbon zero by 2035. The O2C business is looking to invest in next-generation carbon capture and storage technologies to convert CO2 into useful products and chemicals.
These plans are in sync with the vision of Saudi Aramco, which wants to diversify its energy mix and emerge as a force to reckon with in clean energy. The tone was set at the recent annual Davos gathering where many global industrial powerhouses pledged their allegiance to a set of ESG (Environmental, Social, and Governance ) goals.
RIL’s O2C business has high-quality, hi-tech assets and boasts of the largest single-site crude refinery complex globally. RIL is also the largest petcoke gasifier globally, the largest global producer of PX (para-xylene), and has 12 manufacturing facilities in India and three in Malaysia.
As per the official announcement, management control of the O2C business will continue to remain with RIL and the firm expects regulatory approvals for the demerger (which will not impact its consolidated financial position) to be secured by Q2FY22. The deal will result in O2C cash flows optimised to fund its own growth along with efficient upstreaming of cash to RIL.
RIL is focusing on four high-growth areas to drive value, including the O2C business where it expects growth from high-value downstream chemicals and materials. The Digital Platform, which includes Jio Infocomm, retail where consumer-led growth will look to leverage technology, New Material & Energy and clean energy will form the other focus areas for lead clean, green growth.
The demarcation of separate growth engines is also seen as a step towards eventual succession planning by Mukesh Ambani.
