99.99% RIL shareholders cast votes in favour of O2C biz demerger

The demerger scheme provides for transfer of O2C Undertaking from RIL to transferee firm on a slump-sale basis for a lumpsum consideration

With shareholders and creditors of Mukesh Ambani-led Reliance Industries (RIL) voting in favour of the demerger of its oil-to-chemicals (O2C) business, brokerages said the company could detail a new business plan in line with its vision for carbon neutrality and green chemical initiatives.
 
With the O2C business outlook on the mend, the Street is also looking forward to news on RIL’s proposal to sell up to 20 per cent of the O2C business to a strategic investor like Saudi Aramco.
 
 “This O2C business of RIL generates a lot of cash and hence, it will be interesting to see where and how the company plans to invest with a long-term horizon of at least a decade. We will now wait to hear from the company on the same,” said Pankaj Murarka, founder and chief information officer (CIO), Renaissance Investment Managers.

 

 In February, the company announced the restructuring of its O2C business into a separate subsidiary, stating it aims to make its operations net carbon zero by 2035.
 
The company announced the contours of spinning off its oil refining, fuel marketing, and petrochemical businesses into an independent unit, with a $25-billion loan from RIL.
 
The transfer of twin refineries at Jamnagar in Gujarat, petrochemical sites in several states, and a 51 per cent stake in the fuel retailing business to O2C will be on a ''slump sale basis'', subject to requisite approvals that are expected to come in by September, it said.

 
The company’s plan with regard to creating green chemicals is also something investors will be keen to know about going ahead, said analysts. “Globally, chemical firms are investing heavily in creating green initiative. Reliance, known to be ahead of curve, can come up with innovative green chemical products which may also help India leapfrog the green chemicals industry,” said Murarka.
 
On Friday, in an exchange filing, RIL said that 99.99 per cent shareholders, who participated in the meeting held via video conferencing, voted in favour of the O2C demerger scheme. While 100 per cent of the secured creditors voted in favour of the resolution, 99.99 per cent of unsecured creditors cast their vote in favour of the resolution, it said.

 
The meetings were chaired by former Supreme Court Judge Justice (retd) B N Srikrishna.
 
Alongside, the dilution of stake in the O2C business is another significant development brokerages are expecting in the coming months. In 2019, RIL announced that Saudi Aramco would pick up 20 per cent stake in the newly floated subsidiary Reliance O2C for $15 billion.
 
But the oil price crash in April last year, coupled with the subdued public issue of Aramco, compelled the companies to postpone the deal.
 
“Crude oil prices have moved up now and India being an attractive market for investment in the oil business, it makes sense for the deal to pick pace. India as an oil consumption market is expected to grow for the next 20 years, at least amid auto penetration across the country,” said an analyst with a Mumbai-based brokerage.

 
In a report dated 31 March, JM Financial’s analysts led by Dayanand Mittal said that petchem margins have witnessed a gradual recovery on the back of a strong recovery in domestic demand. However, the refining margin and its outlook continue to be weak.
 
“In our view, RIL is better placed to mitigate this challenge due to its integrated and complex facility, locational advantage, and its strength for feedstock sourcing and product placement. Further, the recovery in crude price has improved visibility of a strategic stake sale in its O2C business to Saudi Aramco and/or other strategic players, which can help put a floor to O2C business valuations, despite subdued margin outlook,” they noted.

 
Brent crude oil prices have recovered from lows of about $19 per barrel last April to almost $65 per barrel now, after touching nearly $70 on March 12, 2021.
 
The exchange filing said, according to the directions of the National Company Law Tribunal (NCLT) in February 2021, the company convened meetings of equity shareholders, lenders, and unsecured creditors for consideration of a resolution for transferring the O2C business to a separate subsidiary -- Reliance O2C Limited.
 
“Scheme of arrangement between Reliance Industries (transferor company) and its shareholders and creditors and Reliance O2C (transferee company) and its shareholders and creditors was placed before equity shareholders, secured and unsecured creditors for consideration and approval,” the filing said.