The proposed reorganisation plan by Reliance Industries Ltd to switch its refining, advertising and petrochemical (oil-to-chemicals) companies to a wholly-owned subsidiary is a step in direction of facilitating participation by strategic buyers within the unit, Fitch Rankings mentioned on Tuesday. The reorganisation of the enterprise in Reliance O2C Restricted (O2C) “can have a impartial affect on RIL’s credit score metrics and ranking,” it mentioned in an announcement.
The switch will probably be on a “hunch sale foundation”, 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 strikes its oil refining, petrochemical and 51 per cent stake in a gasoline retail subsidiary – amongst different companies – to O2C, it would proceed to carry companies like textiles and upstream oil and gasoline, and can act as an incubator for brand new progress companies,” Fitch mentioned.
The proposed reorganisation, it mentioned, 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 Firm (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 chance of any cash-flow subordination needs to be mitigated by RIL’s vital majority management in its key subsidiaries together with its robust liquidity, minimal exterior debt on the subsidiaries’ ranges, and total low consolidated leverage place,” Fitch mentioned.
RIL holds 67 per cent in its digital companies and 85 per cent in retail enterprise subsidiaries and goals to take care of a major majority stake in O2C, which gives vital management and entry to money flows generated by these companies.
Lengthy-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.
Moreover, RIL plans to retain nearly all of the present money of USD 30.2 billion (as of end-December 2020) on the dad or mum stage, thereby supporting liquidity.
The money steadiness has benefited from the proceeds of Rs 1.52 lakh crore (USD 20.eight 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 10 per cent stake in its retail subsidiaries and a part of the proceeds from RIL’s Rs 53,124 crore rights problem.
“We don’t count on any change in RIL’s consolidated adjusted internet leverage, which is approaching zero amid declining capex. We count on RIL’s liquidity on the dad or mum stage to stay robust,” it mentioned.
This is able to be assisted additional by money upstreaming by way of curiosity and debt repayments on long-term loans from O2C along with potential dividends from its giant subsidiaries.