INSUBCONTINENT EXCLUSIVE:
New Delhi: Moody's Investors Service on Wednesday said Reliance Industries' announcement of sale of a 20 per cent stake in its oil to
chemicals (O2C) business to Saudi Arabian Oil Company (Aramco) will reduce the company's net leverage and is credit positive.
"The O2C
business, which has an enterprise valuation of USD 75 billion, includes RIL's refining and petrochemical divisions, and RIL's 51 per cent
stake in its fuel marketing business," Moody's said in a report.
The company also announced that it has entered into a deal with BP to sell
49 per cent stake in its fuel marketing business in India for USD 1 billion.
"Together, proceeds from these transactions will result in a
USD 16 billion reduction in RIL's net debt, which will reduce RIL's adjusted net debt/EBITDA by 1.2x from 3.2x for fiscal year 2019, which
ended in March 2019, a credit positive," it said.
The Aramco transaction structure is yet to be finalised and also remains subject to
regulatory and other approvals.
RIL expects that the transaction will close before March 2020.
It will receive the proceeds in three stages
- 50 per cent on closing, another 25 per cent after one year of closing and the balance 25 per cent in the following year.
The O2C business
will be carved out into a division where Aramco will have an economic interest
It will have its own management and accounts.
"However, currently there are no firm plans to create a separate legal entity for this
division (except for the fuel marketing business, which will be in a separate entity)," it said.
"The stake sales are in line with the
company's target to reduce its net debt to zero by March 2021 and reflect the company's commitment to maintaining a strong financial profile
despite significant capital spending over the last five years," it added