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The commercial reorganization proposed by Reliance is neutral in terms of credit: Fitch

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The reorganization plan proposed by Reliance Industries Ltd to transfer its refining, marketing and petrochemical activities (oil to chemicals) to a wholly-owned subsidiary is a step towards facilitating the participation of strategic investors in the unit , Fitch Ratings said on Tuesday.

The reorganization of the activity of Reliance O2C Limited (O2C) “will have a neutral impact on the credit indicators and the rating of RIL,” he said in a statement.

The transfer will be on a “collapse sale” basis, subject to obtaining the required approvals.

The consideration for the transfer will take the form of a long-term interest-bearing debt of USD 25 billion to be issued by O2C to RIL; It is proposed that RIL’s external debt remains with RIL only.

“As RIL transfers its stake in petroleum refining, petrochemicals and 51% in a retail fuels subsidiary – among other businesses – to O2C, it will continue to hold businesses such as textiles and petroleum and gas upstream, and will act as an incubator for new growing businesses, ”Fitch said.

The proposed reorganization, he said, facilitates the formation of strategic partnerships and the sale of shares to potential investors focused on investments in oil-to-chemicals companies.

RIL is in talks with Saudi Arabian Oil Company (Saudi Aramco) to sell a 20% minority stake in its O2C business, which, if successful, should lead to further deleveraging for RIL.

“Following the reorganization, the risk of cash flow subordination should be mitigated by RIL’s strong majority control over its main subsidiaries, as well as by its high liquidity, minimal external debt at the subsidiary level and weak position globally consolidated leverage, ”said Fitch. .

RIL owns 67% in its digital services and 85% in retail subsidiaries and aims to retain a significant controlling stake in O2C, which allows significant control and access to the cash flows generated by these activities.

The long-term loans issued by O2C to RIL, as part of the reorganization, will provide an effective mechanism to flow back the cash generated by O2C to RIL.

In addition, RIL plans to keep the majority of existing cash of $ 30.2 billion (as of end December 2020) at the parent company level, thereby supporting liquidity.

The cash balance benefited from the proceeds of 1.52 lakh crore ($ 20.8 billion) from the sale of a 33% stake in digital services, 47,265 crore (US $ 6.5 billion) from the sale of a 10% stake in its retail subsidiaries and part of RIL’s proceeds 53,124 crore rights issues.

“We do not expect any change in RIL’s consolidated adjusted net indebtedness, which is approaching zero amid declining capex. We expect RIL’s liquidity at the parent company level to remain strong,” did he declare.

This would be further facilitated by an increase in cash flow through the repayment of interest and debts on O2C’s long-term loans in addition to potential dividends from its large subsidiaries.

This story was posted from an agency feed with no text editing.

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