RIL announces O2C business spin-off into 100% subsidiary; shares jump over 1%

Updated : February 23, 2021 12:16 PM IST

All the refining, marketing and petrochemical assets will be transferred to the O2C subsidiary.

Shares of Reliance Industries Ltd (RIL) gained over a percent in early trade on Tuesday after Mukesh Ambani-promoted conglomerate announced that it has initiated the process of carving out its Oil-to-Chemical (O2C) business into an independent subsidiary.

In a release issued to exchanges, RIL said that it will retain full control of the business post-restructuring. All the refining, marketing and petrochemical assets will be transferred to the O2C subsidiary.

The promoter group will continue to hold a 49.14 percent stake in the O2C business after the reorganisation and that the process will result in no change in shareholding of the company.

Reliance expects to get the necessary approvals from the National Company Law Tribunal (NCLT) by the second quarter of the next fiscal year.

Read here: Reliance Industries expects approvals for O2C business spin-off by second quarter

RIL also announced its aim to work with the O2C business to reduce its carbon footprint and become “net carbon zero” by 2035. Its vision includes investing in developing renewable energy systems to meet energy demand and to speed up the transition from traditional carbon-based fuels to hydrogen.

Meanwhile, brokerage house Morgan Stanley said that RIL’s focus to use or capture CO2 stood out and implies carbon capture investments ahead.

“With this reorganization, RIL will have four growth engines- digital, retail, new materials and new energy. While the market appreciates the value for the first two businesses we see significant upside risk to earnings and multiples for O2C as RIL invests in new energy or technology,” Morgan Stanley said.

It maintained an Overweight rating on the stock with a target price of Rs 2,252 per share.

Reliance’s reorganisation creates a smoother process for Aramco deal to happen, said Probal Sen, Senior Vice President at Centrum Broking.

Speaking in an interview with CNBC-TV18, Sen said, “This will allow strategic investors to invest in a cleaner balance sheet and also creates a smoother pathway for likes of Aramco to probably look at business without the legacy debt hampering future prospects.”

Read here: RIL demerger: Creates smoother process for Aramco deal to happen, says Centrum Broking’s Probal Sen

There is an implied possibility of holding company discount playing out, Sen added.

“Given that the entities are still housed very much within the main entity and I am not spun-out as a separate listed entity. Yes, there is a certain element of implied holding company discount that will start to creep in given that all these businesses have specific strategic investors, but you apply holding company discount when the management control is diluted in some way or monetization or taxation implication. None of which is there at least at this point in time,” he said.

At 9:40 am, the shares of Reliance Industries traded 1.41 percent higher at Rs 2,035.65 apiece on the BSE as compared to a 0.32 percent gain on the benchmark Sensex.

Disclosure: Network18, the parent company of CNBCTV18.com, is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.

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