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

Updated : February 23, 2021 11:57 AM IST

Reliance’s reorganisation creates a smoother process for Aramco deal to happen, said Probal Sen, Senior Vice President at Centrum Broking, on Tuesday. The observation comes as Reliance Industries announces that it will spin-off its oil-to-chemical (O2C) business into an independent 100 percent subsidiary which will constitute the refining, petrochemical and fuel retailing businesses. Post reorganisation, Reliance will continue with management control.

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. This is on expected lines from the time that they have been talking about setting O2C as a separate unit. We all knew that this demerger would happen as and when negotiations advance with interested buyers. So the fact that they have done it and they have put in a clear timeline, for the next 6-months for closing all the required regulatory approvals, implies that discussions with Aramco are back on track.”

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.”

Disclosure: Network 18, which publishes cnbctv18.com, is a part of the Reliance Group.

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