InvestorQ : Why has Reliance decided to put off its proposed sale of 20% stake in Reliance O2C to Saudi Aramco?
manisha Kolvenkar made post

Why has Reliance decided to put off its proposed sale of 20% stake in Reliance O2C to Saudi Aramco?

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Crowny Pinto answered.
2 weeks ago
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Last week, Reliance Industries applied to the NCLT to withdraw its original application for separating the O2C business into Reliance O2C Ltd. That also raises doubts over the deal to sell 20% in Reliance O2C business to Saudi Aramco. Here is what you need to know about the reasons why Reliance has opted out of the deal and they will bide time for now.

a) Reliance is repositioning itself with a difference. It had originally identified its 3 thrust areas as digital, retail and hydrocarbons. However, now the hydrocarbons focus is being changed to new energy with focus on solar and hydrogen. That is a big shift.

b) Reliance will be investing $10 billion over the next 3 year in hydrogen electrolysers, solar equipment, photovoltaic cells etc. To get a more realistic valuation of the new energy business, it will be a better option for RIL to put off the deal for now.

c) The Aramco deal signed in 2019 valued the O2C business at $75 billion. However, Reliance is of the view that valuation could be a multiple of that if you look at the new energy potential in the coming years. That is why the deal is put off for now.

d) Reliance has committed $10 billion to new energy in next 3 years and Adanis are also making big commitments. Clearly, that is where the future valuation is and RIL does not want to make the mistake of undervaluing its green energy franchise.

e) In the digital and retail business, RIL has learnt that true value lies in being ahead of the curve. That applies to new energy too. It would rather use the cash cow of refining to fund its new energy plans. That would eventually be a lot more value accretive.

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