Reliance to Carve Out Oil-to-Chemical Business With $25 Billion Loan from Parent

Indian conglomerate Reliance Industries (RIL) announced plans to spin-off (Term of the day, explained below) its oil-to-chemical (O2C) operations into an independent unit by September. The O2C business, which contributed ~60% the company’s top line will be granted a $25bn interest bearing loan from the parent. The market regulators and stock exchange approvals for the deal have already been received and the shareholders and creditor approvals are likely to be sought in April. The reorganization will help the company execute a proposed stake sale to Saudi Aramco and reduce its debt further. As per RIL, creating the unit “facilitates participation by strategic and financial investors for value discovery and unlocking.” RIL had sold stakes in its retail and digital business worth ~$27bn last year to global investors including Facebook and Google which helped it turn net-debt free. The company expects to retain its investment grade rating and does not foresee any dilution in earnings and cash flows after the reorganisation. According to a Morgan Stanley analyst, “With this reorganization, RIL will have four growth engines – digital, retail, new materials and new energy,… While the market appreciates the value for the first two businesses we see significant upside risk to earnings and multiples for O2C as RIL invests in new energy/technology.”