Potential for re-rating and sustainable value creation: RIL on O2C reorganisation (Ld)

Reliance Industries Limited (RIL) has created 1.3 times more shareholder wealth than any other company in India over the last 25 years.

As per a presentation on the proposed reorganization of O2C business of RIL, the company said it has created 1.3 more wealth.

Reorganization of O2C Business facilitates participation by strategic investors and marquee sector focused investors and long-dated loan with repayment flexibility an efficient mechanism to upstream cash to RIL from any strategic investment in O2C.

For the shareholders, there will be four high growth engines driving value creation-O2C – Growth from high value downstream chemicals and materials, Digital – Connectivity and scaling up of digital platforms, Retail – Consumer-led growth leveraging technology & omni-channel presence and New Material & New Energy – Clean, Green & Affordable energy.

The creation of pure-play O2C platform will attract high quality strategic partners and capital and independent, self-funded O2C Company focused on pursuing new growth opportunities, efficient upstreaming of cash to RIL from O2C and no earnings dilution or any restriction on cash flows. There is a potential for re-rating reflecting value of each growth business.

RIL said it is beneficial to all stakeholders as O2C reorganization creates an independent, global scale growth engine for RIL, with strong cash flow generation potential. There is no impact on RIL’s consolidated financials, investment grade international, and domestic AAA credit ratings.

RIL will further accelerate its New Energy & New Materials business towards its vision of clean and green energy development. There is a potential for re-rating and sustainable value creation, O2C subsidiary facilitates participation by strategic and financial investors for value discovery and unlocking and consent process to be completed by Q1FY22, NCLT approval expected by Q2FY22.

On the rationale for the reorganization of O2C business, the company said 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.

Strong underlying performance of each business has resulted in a strong and diversified growth and earnings profile. RIL has initiated the process of carving-out O2C Business into an independent subsidiary. Each business will pursue its own independent growth opportunities and create value.

As per the rationale, independent growth company enables focused pursuit of opportunities across O2C value chain. Enhanced efficiencies through self-sustaining capital structure and dedicated management team. It facilitates value creation through strategic partnerships and attract dedicated pools of investor capital.

RIL said the reorganization will be beneficial to all stakeholders of RIL, management control of O2C continues with RIL, existing O2C operating team moves with transfer of business, no dilution of earnings or any restriction on cash flows. RIL is expected to retain its investment grade international (BBB+/ Baa2), and domestic AAA credit ratings. Strategic re-organization will create long term value, it said. All Refining, Marketing & Petchem Assets Will be Transferred to O2C.

It will be India’s largest and most preferred provider of mobility, including EV charging and low-carbon solutions. RIL and BP have formed a 51:49 JV, that includes retail service station network and aviation stations.

The approval process has commenced and is expected to be completed by Q2 FY22. Reliance is very well positioned with high level of cash to pursue growth. Post the reorganisation, RIL standalone entity will have all existing segments other than O2C business.

Reliance has a vision to be net carbon zero by 2035 and opportunity to accelerate New Energy and New Materials businesses based on RIL’s vision of clean and green development. It will build an optimal mix of reliable, clean and affordable energy and storage using solar, wind and batteries, accelerate transition to a hydrogen economy and develop portfolio of advanced and specialty materials.