RIL has unveiled a detailed plan to carve out its Oil-to-Chemicals (O2C) business into a separate unit on a slump sale basis to attract strategic investors.

As per the plan, assets and liabilities pertaining to refining, petrochemicals, fuel retail (51 per cent stake) and bulk wholesale marketing businesses will be transferred to a new entity.

RIL Chairman Mukesh Ambani at the company's AGM had highlighted the strategic investment by Saudi Aramco for a 20 per cent stake which got delayed due to the Covid-19 pandemic with the latter still performing due diligence.

The plan is subject to NCLT approval and is expected to be completed by early 2021.

Axis Capital said in a research note, "We expect RIL to attract many other strategic investors into its O2C business given it provides strong foothold in India with the fastest growing fuels market where passenger cars are expected to grow ~6x over the next two decades.

"Implementation of the 'New Energy and New Materials' strategy adopted at the AGM will make it more lucrative given the low per-capita petchem and energy use."

As per the report, RIL believes that its O2C business attracts specific set of investors and strategic partners given the different risk and return expectations against the other businesses (digital services, retail, financial services and E&P).

"This necessitated the movement of O2C business assets and liabilities to a subsidiary in which interested parties can invest directly (similar to marquee investments that we have seen in digital services and are expected to happen with retail, as highlighted by the Chairman in his AGM speech)," the report said.

Apart from Saudi Aramco, which signed a non-binding MoU in 2019, RIL highlighted that many other companies are interested in strategic investment in its O2C business, which is geared to become a 'New Energy and New Materials' business with focus on chemicals, advanced materials and carbon capture and storage.

This scheme also ring-fences O2C business' liabilities which will be handled by the Reliance O2C subsidiary, once effective.

"Despite delays in confirmation of non-binding MoU signed with Saudi Aramco, we remain confident on long-term proposition of RIL's O2C business and see the deal as a win-win for both the companies.

"As per our calculations, the investment offers 9 per cent IRR (not including optional value from foray into new energy and materials) to Saudi Aramco on Rs terms at $75 billion valuation and 80 per cent dividend payout (400 bps upside if 90 per cent dividend payout in bull-case) and 120 bps upside if invested at $65 billion valuation," the report said RIL's 'New Energy and New Materials' strategy encompasses net carbon-zero target by 2035, gradual reduction of transportation fuels production while increasing production of high-value proteins, nutraceuticals, advanced materials and fuels.

This is in line with long-term strategies of many global oil majors who can become natural partners in achieving a common goal while also benefiting from India's 'growth' opportunity.

RIL plans to transfer its 'O2C undertaking' on slump sale basis to its 100 per cent subsidiary Reliance O2C Ltd (erstwhile Reliance Navi Mumbai Infra Ltd incorporated in January 2019).

The scheme will become effective from the appointed date (January 1, 2021 or any other date approved by the Board). Reliance O2C may either issue securities or interest bearing loans to RIL towards partial/whole consideration for transfer of O2C undertaking. The plan is still due for NCLT approval.

As part of the scheme, assets and liabilities of refining, petrochemicals, fuel retail (51 per cent stake) and bulk wholesale marketing businesses of RIL's O2C undertaking will be transferred to Reliance O2C Ltd.

There will be no change in shareholding pattern of RIL and Reliance O2C as a result of the transfer given that the latter is 100 per cent owned by RIL. The balancesheet of RIL will be modified accordingly.