What Reliance O2C consists of?

As the name suggests, the Reliance O2C business will comprise the oil refining and the petrochemicals business of RIL. It will also include the RIL stake in the oil marketing JV with BP, but the oil and gas extraction business will remain with RIL. Broadly, it is value neutral to the shareholders of RIL as nothing much will change in terms of value. The O2C business now gets a separate legal and also financial identity. That could be the first step towards more effective ways to monetize the stake in this business. Here is how it could happen. 

Time to find willing buyers

The O2C business was originally valued at $75 billion with Saudi Aramco willing to buy 20% stake in the O2C business of RIL for $15 billion. The deal did not materialize due to the pandemic and the subsequent crash in oil prices. However, that did not really deter the zero net debt plans of RIL as they successfully managed to monetize parts of their Jio Platforms and the retail businesses. Aramco may still return as a buyer but Reliance has remained steadfast that it would not compromise on its valuations! 

Lessons from Jio Platforms

Reliance Industries learnt three very important lessons from the monetization of Jio Platforms. Firstly, it realized that it would be best to have a mix of strategic investors and PE investors to broaden the base. With Aramco, RIL had got tied down to one strategic partner. Secondly, the Jio monetization happened at the peak of the pandemic hinting that for any good quality asset, there are buyers in any market condition and at any level of general market valuation. Lastly, the big lesson learnt from monetizing the digital business was that investors need a credible story and when it comes to PE investors, the story has to be in sync with emerging trends. That is likely to be one big idea of O2C being hived off. 

Green future for O2C

With the Paris Accord likely to become a reality soon, the tenure of fossil fuels may be substantially shortened. The old-style fuel will still be around for some time but for the O2C business to get a decent valuation in the market, it has to be positioned in the cutting edge of energy. That would entail greater focus on green energy, lower focus on fossil fuels and greater focus on becoming carbon neutral. The recent AGM of RIL has already made all these a part of their plan of action. For RIL, the oil and petchem business has stood them in good stead for over 40 years. It is time to shift in a new direction! ©