Reliance stock soars after unveiling plans to rejig gasification assets

Shares of Reliance Industries Ltd (RIL), the country's biggest company by market value, gained as much as 6.1% on Thursday after its board approved a scheme to consolidate its gasification assets into a separate unit.

RIL, led by billionaire Mukesh Ambani, is seeking approval from the capital markets regulator, creditors as well as shareholders for the restructuring and aims to conclude the exercise before the end of the current fiscal year in March 2022.

What led RIL to take up such a restructuring process?

RIL said the repurposing of gasification assets will help the oil-to-telecom behemoth use syngas as a reliable source of feedstock to produce chemicals to meet the growing domestic demand.

This, the company said, will result in an “attractive” business opportunity. Further, as the hydrogen economy expands, RIL will be well-positioned to be the first mover to establish a hydrogen ecosystem, the company said.

Syngas, also known as synthesis gas, is a type of gas mixture primarily comprising hydrogen, carbon monoxide and carbon dioxide. The outbreak of COVID-19 pandemic, which halted manufacturing activities of end-use industries such as chemical, oil, and construction, had an impact on the demand for syngas.

“Syngas as a fuel ensures reliability of supply and helps reduce volatility in energy costs. Syngas is also used to produce hydrogen for consumption in the Jamnagar refinery,” it said. Reliance operates the world’s largest single-location oil refinery at Jamnagar in Gujarat.

RIL’s plan to restructure the gasification business is perhaps meant to generate uninterrupted supply of in-house syngas, which reduces transportation costs and improves stability for end-use of manufacturing chemicals.

As per Allied Market Research, a market research firm based in Pune, the worldwide syngas market size is projected to touch $66.5 billion by 2027. This is up from $43.6 billion in 2019, as per the market research firm.

How will the scheme benefit RIL?

RIL said it will enable the company to unlock value of syngas with a collaborative and asset-light approach that will involve inducting external investors in the gasifier subsidiary, the same way it did with its digital business when it raised upwards of Rs 1.5 trillion ($20.6 billion) in 2020 when most companies were struggling to stay afloat.

RIL also aims to capture value by upgrading through strategic partnerships for its chemicals business in different chemical streams.

What has the board approved?

The RIL board has approved the scheme to transfer the gasification undertaking as a going concern on slump sale basis for a lump sum consideration equal to the carrying value as on March 31, 2022.

How did the stock market react?

RIL shares advanced as much as 6.1% in mid-day trade with strong volumes. More than 10.2 million shares exchanged hands so far in the cash segment on the BSE and tge NSE combined, up 40% compared to its one-month average daily volume of 6.1 million shares on both the exchanges.

The company now commands a market capitalization of over Rs 15.82 trillion. In the past 52 weeks, the stock has touched a high of Rs 2,750 and a low of Rs 1,830 apiece.