24 Feb , 2021 By : kanchan Joshi
Reliance Industries’ move to carve out a separate unit for its oil to chemicals (O2C) empire could help draw strategic and financial investors to a future alternative-energy revenue stream, with India’s most valuable company seeking to replicate its monetisation playbook for consumer sectors to unlock value in the legacy businesses.
The proposed financial details of the carve-out are as follows. RIL NSE 1.14 % on a standalone basis will transfer $40 billion (approximately ?2.9 lakh crore) of long-term assets and $2 billion (?14,500 crore) of net working capital to the O2C entity for a $25-billion (?1.8 lakh crore) floating-rate loan linked to one-year SBI MCLR rate and $12 billion (?87,000 crore) of equity. The arrangement will be tax neutral and not impact RIL’s consolid cash flow, keeping its credit rating intact.
To be sure, Reliance is seeking to achieve a net carbon-zero status for its operations by 2035.
The $25-billion loan will gradually be repaid as and when proceeds are received from strategic investors for the O2C venture. The format is quite similar to the Jio Platforms structure wherein the proceeds from stake sales were used to deleverage the consolidated balance sheet.
Using the implied valuation of $75 billion for the O2C business based on the Saudi Aramco deal announced in August 2019, its equity value works out to be $45 billion after excluding $30 billion of debt. It means the proposed 20% stake sale to Aramco would result in a cash flow of $9 billion.
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