Reliance’s Stake Sale To Saudi Aramco Is Credit Positive, Moody’s Says

Reliance Industries Ltd.’s 20 percent stake sale in its oil-to-chemicals business to Saudi Arabian Oil Co. wlll reduce the Mukesh Ambani-led company’s net debt and is credit positive, Moody’s Investors Service Inc. said today.

“The oil-to-chemicals business, which has enterprise valuation of $75 billion, includes RIL’s refining and petrochemical divisions, and RIL’s 51 percent stake in its fuel marketing business,” the ratings agency said in a report.

RIL has also entered into a deal with U.K.’s BP Plc. to sell 49 percent stake in its fuel retail business in India for $1 billion.

“Together, proceeds from these transactions will result in $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,” the rating agency said.

While the structure of the Reliance-Aramco deal is yet to be finalised and needs regulatory approval, RIL expects the transaction to close before March 2020.

RIL will receive proceeds from the stake sale to Saudi Aramco in three stages—50 percent after deal closure, 25 percent a year after that, and the rest in the following year.

The company’s oil-to-chemicals business will be carved out into a division where Saudi 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),” RIL said.

“The stake sales (to Saudi Aramco and BP Plc) 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,” RIL said.