Reliance energy share sales to Aramco, BP to reduce profits, cash flow: brokerage

New Delhi, August 13 () Reliance Industries selling a fifth of its oil and chemical assets to Saudi Aramco and almost half of its retail fuel operations to BP, will make the company's energy business almost free of debts, but will reduce your consolidated profits and operations. cash flow, brokers said Tuesday

In the announcement made by the president of Reliance Industries, Mukesh Ambani, on Monday, Morgan Stanley said that in the past three months, the company has performed less than Sensex by approximately 11 percentage points due to weak refining margins. and the decrease in key differentials of chemicals.

Reliance announced sales of energy assets worth around USD 16 billion; end of the cycle of investment in telecommunications; set the net debt to zero in 18 months; value unlocking options for real estate and financial assets; list of telecommunications and retail sale in five years; and focus on dividends.

Reliance announced that it accepts a non-binding letter of intent from Saudi Aramco for a proposed investment in its refining, petrochemical and fuel marketing business. In addition, it is selling a 49 percent stake in the retail fuel business to BP for Rs 7,000 crore (about USD 1 billion).

He plans to sell a 20 percent stake in the oil and chemical business at a business value of USD 75 billion while obtaining 5 lakh barrels per day of oil from Saudi Aramco. The transaction, at an initial stage for now, will be subject to due diligence, final agreements, regulatory approvals and other legal approvals.

Once completed, we estimate that the sale of the stake will make RIL's energy business almost debt free, but will reduce the consolidated earnings of fiscal year 21 of RIL by 9 percent and operating cash flow by 14 percent, said Morgan Stanley.

In addition, the monetization of energy assets (retail sale of fuel to BP, oil and chemicals to Saudi Aramco), together with the announcement of the end of the telecommunications investment cycle, would help to unleash the balance after almost seven years.

RIL has highlighted plans to reach zero debt at the end of F21 (March 2021), but we saw announcements that could reduce debt/liabilities by a third and expect more details about their future plans, he said.

Kotak Institutional Equities Research said that RIL may be required to create a carving or special purpose structure, rather than a subsidiary, for the oil-to-chemical (O2C) business under the independent entity for its proposed transaction with Saudi Aramco to ensure the fungibility of cash flows and avoid tax leaks.

The amount of debt/liabilities that will be transferred with the O2C business and other contours, including the long-term crude oil supply agreement and capital expenditure, will be finalized in due course, he said.

RIL can receive payment of 50 percent at the close of the proposed transaction and 25 percent each in two tranches over the next two years.

Morgan Stanley said that if the details of Saudi Aramco's oil supply are limited, Morgan Stanley said that if RIL can get heavy barrels, it could reduce the recent challenges that refiners have faced to get heavy barrels of crude from the Middle East.

The agreement is expected to be completed in fiscal year 20.

He said refining margins weakened during most of the last quarter amid almost zero growth in demand for oil and high premiums for heavy crude.

However, the market has begun to rebalance and the margins on key products such as diesel and gasoline are improving significantly. In addition, the margins in PX and MEG (which represent almost 30 percent of chemical production), have declined in the last two quarters, he added. ANZ DRR