Why O2C restructuring is crucial for RIL’s alternative energy venture

A plan to carve out the refining and petrochemicals business (oil to chemicals or O2C) as a subsidiary may help Reliance Industries (RIL NSE 1.14 %) in attracting strategic and financial investors crucial for its foray into the alternative energy vertical. The company aims to make its operations net carbon zero by 2035.

Under the plan, RIL on a standalone basis will transfer $ 40 billion (approximately Rs 2.9 lakh crore) of long-term assets and $ 2 billion (Rs 14,500 crore) of net working capital to the O2C entity for the consideration of a $ 25 billion (Rs 1.8 lakh crore) floating rate loan linked to one-year SBI MCLR rate and $ 12 billion (Rs 87,000 crore) of equity. The arrangement will be tax neutral and will not impact the company’s consolidated cash flow, thus keeping its credit rating intact.