Mukesh Ambani-owned Reliance Industries Limited on February 23, announced the demerger of its oil-to-chemicals (O2C) business into a wholly-owned subsidiary.
The notification, issued late night on February 23, seeks shareholder and creditors’ approval on the company’s plan to demerge its O2C business.
Flashback of O2C deal
Mukesh Ambani in August 2019 had announced talks for sale of 20 per cent stake in the oil-to-chemical business, which comprises its twin oil refineries at Jamnagar in Gujarat and petrochemical assets, to Saudi Aramco, the world’s largest oil exporter.
The deal was to be concluded by March 2020 but has been delayed amid the coronavirus crisis.
Mukesh Ambani in RIL’s annual report for 2019-20 had said both RIL and Saudi Aramco were in talks of arriving at a deal.
Now, the demerger plans gained momentum after RIL resumed talks with the Saudi Arabia-based oil company, after months of pause caused by the coronavirus pandemic.
Business after demerger
After the demerger, holding company RIL will have upstream exploration and production business, and financial services, treasury and textile business.
RIL O2C Ltd will have an oil-to-chemical business comprising refining and petrochemicals, fuel retail, and control over global subsidiaries of RIL.
Demerger Impact
The O2C reorganisation will create an independent, global scale growth engine for RIL, with strong cash flow generation potential. It will have no impact on RIL’s consolidated financials, international and domestic AAA credit ratings.
The demerger will help RIL with its New Energy & New Materials business for clean and green energy development.
Shareholding Pattern
The promoter group will continue to hold a 49.14 percent stake in the O2C business after the reorganisation and that the process will result in no change in shareholding of the company.
What about Existing?
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.
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