Mukesh Ambani-backed
Reliance Industries (RIL) has initiated the process of carving-out O2C Business into an independent subsidiary. Following the development, investors cheered RIL on Tuesday's trading session to an extent that the stock was among top performers.
In a presentation filed at exchanges, the company stated that RIL's unprecedented growth in the last decade has been driven by significant growth in O2C Business and rapid scale-up of new consumer businesses - Digital and Retail.
While providing the rationale for O2C business reorganization, RIL said that an independent growth company enables the focused pursuit of opportunities across the O2C value chain. Further, the independent business will enhance efficiencies through a self-sustaining capital structure and dedicated management team. Also, it will facilitate value creation through strategic partnerships and attract dedicated pools of investor capital.
RIL stakeholders will also be beneficial from this reorganization. RIL will hold 100% management control of the new subsidiary. Also, the existing O2C operating team moves with the transfer of business. Further, there is no dilution of earnings or any restriction on cash flows.
There will be no change in the shareholding pattern of RIL in O2C re-organization. RIL will maintain its shareholding of 49.14% in Reliance O2C Limited.
Under the 100% O2C subsidiary, RIL will transfer refining, marketing and petrochemicals assets. Notably, the fuel retail subsidiary will also be part of the proposed O2C Business, under which, RIL holds a 51% stake and the remaining 49% stake is held by BP Plc.
RIL has already bagged Sebi and stock exchanges approval for the business re-organization. The deal now seeks approval from equity shareholders and creditors, regulatory authorities, income tax authority, NCLT Mumbai and NCLT Ahmedabad.
Furthermore, RIL has announced an interest-bearing loan of $25B to the O2C business. O2C to pay floating rate interest linked to 1-year SBI MCLR rate. RIL said, "Consideration for O2C assets funded by an interest-bearing loan from RIL to O2C – efficient mechanism to upstream cash, including any potential capital receipts in O2C."
RIL expects the consent process to be completed by Q1FY22, however, approval from NCLT Mumbai and NCLT Ahmedabad is expected by Q2 FY22.
RIL is expected to retain its investment-grade international (BBB+/ Baa2), and domestic AAA credit ratings.
At around 11.18 am, RIL traded near the day's high to Rs2051 per piece surging by Rs43.45 or 2.17%. The stock has touched an intraday high of Rs2053.10 per piece in early deals.
At the current market price, RIL's market capitalisation skyrocketed to Rs13 lakh cr.