The proposed reorganisation plan by Reliance Industries Ltd to switch its refining, advertising and marketing and petrochemical (oil-to-chemicals) companies to a wholly-owned subsidiary is a step in the direction of facilitating participation by strategic buyers within the unit, Fitch Ratings stated on Tuesday. The reorganisation of the business in Reliance O2C Limited (O2C) “will have a neutral impact on RIL’s credit metrics and rating,” it stated in a press release.
The switch will probably be on a “slump sale basis”, topic to attaining the requisite approvals.
The consideration for the switch will probably be within the type of long-term interest-bearing debt of USD 25 billion to be issued by O2C to RIL; RIL’s exterior debt is proposed to stay with RIL solely.
“As RIL moves its oil refining, petrochemical and 51 per cent stake in a fuel retail subsidiary – among other businesses – to O2C, it will continue to hold businesses like textiles and upstream oil and gas, and will act as an incubator for new growth businesses,” Fitch stated.
The proposed reorganisation, it stated, eases the formation of strategic partnerships and stake gross sales to potential buyers focussed on investments in oil-to-chemicals companies.
RIL has been in ongoing discussions with Saudi Arabian Oil Company (Saudi Aramco) to promote a minority 20 per cent stake in its O2C companies, which, if profitable, ought to result in additional deleveraging of RIL.
“Following the reorganisation, the risk of any cash-flow subordination should be mitigated by RIL’s significant majority control in its key subsidiaries along with its strong liquidity, minimal external debt at the subsidiaries’ levels, and overall low consolidated leverage position,” Fitch stated.
RIL holds 67 per cent in its digital companies and 85 per cent in retail business subsidiaries and goals to take care of a major majority stake in O2C, which supplies vital management and entry to money flows generated by these companies.
Long-dated loans issued by O2C to RIL, as a part of the reorganisation, will present an environment friendly mechanism to upstream money generated from O2C to RIL.
Furthermore, RIL plans to retain the vast majority of the present money of USD 30.2 billion (as of end-December 2020) on the dad or mum degree, thereby supporting liquidity.
The money steadiness has benefited from the proceeds of Rs 1.52 lakh crore (USD 20.8 billion) from the sale of a 33 per cent stake in digital companies, Rs 47,265 crore (USD 6.5 billion) from the sale of a ten per cent stake in its retail subsidiaries and a part of the proceeds from RIL’s Rs 53,124 crore rights challenge.
“We do not expect any change in RIL’s consolidated adjusted net leverage, which is approaching zero amid declining capex. We expect RIL’s liquidity at the parent level to remain strong,” it stated.
This could be assisted additional by money upstreaming through curiosity and debt repayments on long-term loans from O2C along with potential dividends from its massive subsidiaries.