After two years of diligence that pegged the valuation of oil-to-chemicals division at $75 billion, Reliance Industries Ltd. has now decided not to sell stake to Saudi Aramco. Yet, that’s unlikely to change much for the company that has successfully raised cash to turn net debt-free. And committed investments to build a renewable energy ecosystem.
The move to scrap the deal will, in fact, benefit RIL as it will not have a holding company discount as envisaged earlier because of the creation of an O2C subsidiary, said Deven Choksey, managing director at KR Choksey Investment Managers. Reliance is expected to generate Rs 2.5 lakh crore in operating income in the next two years, which would be sufficient to undertake future investments and reduce debt, he said.
The process to monetise the oil-to-chemicals business began in 2019 when billionaire Mukesh Ambani, Asia’s richest man, announced a plan to cut debt at the refining-to-retail group he controls. Reliance decided to hive off the Jamnagar-based refining complex and sell 20% stake at an enterprise value of $75 billion to Aramco.
In the two years that followed, the company financially consolidated its O2C operations and was awaiting final clearance from the National Company Law Tribunal.
Bernstein valued the unit at $69 billion—the refinery and petrochemical business at 7.5 and 7.9 times the estimated enterprise value-to-Ebitda multiple for FY23, respectively. That’s in line with valuation of global peers.
However, much has since changed for the company. It was able to bring in Rs 2.6 lakh crore ($36 billion) via rights issue, selling stake in Jio Platforms Ltd. and Reliance Retail Ltd. to a clutch of global investors including Google and Facebook Inc. That helped the company become net debt free.
Ambani has also lined up $10-billion in investments for its new energy and materials business based out of the Jamnagar complex.
So both Reliance and Saudi Aramco agreed to re-evaluate the proposed investment in the O2C business in light of the changed context, the company’s statement said. It has also withdrawn its application to subsidiarise the division.