Balance ₹50,000 cr. for O2C business may come in phases

Saudi Aramco may pay about ₹50,000 crore ($7 billion) upfront for buying a 20% stake in Reliance Industries Ltd.’s (RIL’s) oil-to-chemicals (O2C) divisionduring closure of the deal, a source told The Hindu.

The balance ₹50,000 crore may come up as debt on the books of a newly-carved out entity or Saudi Aramco will pay in phases on completion of certain milestones, the source said.

Both the firms have signed a non-binding pactwherein Saudi Aramco will buy a 20% stake in RIL’s O2C division, that will also include a 51% stake in RIL’s petro-retail business.

“Due diligence will take about 3-4 months to complete. We [have till then to] decide on the structure of the deal, which is valued at $15 billion for 20% stake. The structure may change depending upon the debt to be taken by the newly carved out division,” said the source.

An e-mail sent to RIL seeking its response remained unanswered till the time of going to the press.

“We expect to complete these transactions within this financial year subject to definitive agreements, due diligence, regulatory and other customary approvals,” Mukesh Ambani, chairman, RIL, said while addressing the shareholders at the company’s annual general meeting.

“The commitments from these two transactions are about ₹1.1 lakh crore,” he added.

Fitch Ratings has revised the outlook on RIL’s long-term local currency issuer default rating to ‘positive’ from ‘stable’ and has affirmed the rating at ‘BBB.’

At the same time, the agency has affirmed the Long-Term Foreign-Currency IDR at ‘BBB-’ with a Stable Outlook, as RIL’s Foreign-Currency IDR is capped by India’s (BBB-/Stable) Country Ceiling of ‘BBB-’.

“The affirmation reflects RIL’s strong business profile — a large-scale refinery with a capacity of around 1.2 million barrels a day and industry-leading asset quality that enables it to consistently deliver a gross refining margin (GRM) above regional benchmarks. RIL also benefits from its vertically integrated business model and dominant market position in petrochemicals, which smooths out profit volatility along the refining and petrochemical value chain,” said a Fitch statement adding that the company has completed capex to increase its downstream integration, which has improved feedstock flexibility.

RIL’s financial profile is likely to improve, supported by strong operating cash flow from its expanded petrochemical and refining business.

Capital expenditure should moderate from FY20, with free cash flow turning positive in FY21,, said Fitch.