The proposed reorganization plan by Reliance Industries Ltd to transfer its refining, marketing, and petrochemical (oil-to-chemicals) businesses to a wholly-owned subsidiary is a step towards facilitating participation by strategic investors in the unit, Fitch Ratings said on Tuesday.
It said in a statement that the reorganization of the business in Reliance O2C Limited (O2C) “will have a neutral impact on RIL’s credit metrics and rating”. The transfer will be on a “”, subject to attaining the requisite approvals.
The consideration for the transfer will be in the form of long-term interest-bearing debt of USD 25 billion to be issued by O2C to RIL; RIL’s external debt is proposed to remain with RIL only. “As RIL moves its oil refining, petrochemical, and 51 percent 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 said.
It said that the proposed reorganization eases the formation of strategic partnerships and stake sales to potential investors focussed on investments in oil-to-chemicals businesses. RIL has been in ongoing discussions with Saudi Arabian Oil Company (Saudi Aramco) to sell a minority 20 percent stake in its O2C businesses, which, if successful, should lead to further deleveraging of RIL.
“Following the reorganization, 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 said.
RIL holds 67 percent in its digital services and 85 percent in retail business subsidiaries and aims to maintain a significant majority stake in O2C, which provides significant control and access to cash flows generated by these businesses.