RIL Takes Next Step to Unlock the Aramco Deal, Carves Out its O2C Business

Shares of Reliance Industries Ltd. (RIL) gained on Tuesday after the company announced diversion of its oil-to-chemicals (O2C) business into a wholly owned subsidiary as the company eyes massive business deals in future in addition to favorable prospects over its ongoing deal talks with Saudi Aramco.

In a notification released late night on Friday, the company sought approval of the shareholders and creditors on the reorganization. RIL stated that the formation of the independent entity will enable the company to dedicatedly work towards growth opportunities across the O2C value chain.

The company’s O2C business encompasses production and exploration operations in refining and petrochemicals, fuel retail, and control over the global subsidiaries of RIL. As per the company officials, the move will help in the maintaining better operations by establishing a self-sufficient capital structure and a dedicated management team apart from attracting strategic partnerships and global investors. The company’s plans to bifurcate its O2C business gained momentum after it resumed talks with Saudi Aramco after a significant halt in operations caused due to the coronavirus related disruptions.

The company’s chairman and managing director, Mukesh Ambani in 2019 had initiated talks about selling 20% of its stake in the oil-to-chemical business, comprising of its twin oil refineries at Jamnagar in Gujarat and petrochemical assets located in Dahej, Hazira, Nagothane, Vadodara, Patalganga, Silvassa, Barabanki and Hosiarpur, to Saudi Arabia-based global oil giant. The company's O2C complex in Gujarat is the world's largest and has contributed nearly 62% of the company's revenue and 58% of the operating profit in FY20.

The deal was anticipated to conclude by March 2020 but has stood delayed due to the coronavirus crisis. Industry experts believe the news of the demerger was announced to pace up the negotiations of the historic deal after a significant pause. The company is expecting to get the necessary approvals for its O2C business spin-off by H2 FY2022.

In its latest investor presentation, RIL also expressed its plans towards introducing new technologies aimed reducing its carbon footprint for its O2C business and actualize the vision of becoming a net zero carbon emission company by 2035.

As per ChemAnalyst," India’s domestic demand for petrochemicals is projected to grow at a CAGR of 9 per cent through 2022-2023. With the government’s strong intervention in cutting country’s import bill, RIL is having high expectations from the mega deal. While the restructuring would enable RIL to raise funds and shed weight over its balance sheet in addition to increasing its hold over a wide portfolio of crude grades and ensuring feedstock security, the partnership would help Aramco to strategically increase its footprints in the Indian market.”