Mumbai / New Delhi: For India’s warring billionaire Ambani brothers, peace means competition.
Freed from a pact that prevented him from going head-to-head with younger brother Anil, Mukesh Ambani’s Reliance Industries can now invest wherever he sees opportunity, with financial services, power and infrastructure on his target list.
After five years of a bitter feud that split India’s richest family, held government energy policy hostage and discouraged foreign investment in oil and gas, Mukesh and Anil unexpectedly called a truce on Sunday by ending a non-competition agreement that was a source of acrimony between them.
After their father, Dhirubhai, died in 2002 without leaving a clear will, the brothers split the inherited business in a 2005 deal brokered by their mother, Kokilaben, and some of India’s top bankers.
Shares in conglomerate Reliance Industries and the listed firms in Anil’s Reliance ADA Group surged on Monday on expectations the brothers, who have a combined worth estimated at $43 billion, will move beyond the dispute that has been a costly distraction since they carved up their father’s business empire.
The shares retreated on Tuesday in a weak broader market.
While the two groups spoke hopefully of harmony and cooperation, they are unlikely to invest together anytime soon given the recent bad blood, said a person familiar with the matter who declined to be identified.
Still, Mukesh’s Reliance Industries, which has been seeking global acquisitions for growth, can now invest freely in a country where it is well-connected, its brand is ubiquitous, and where an economy poised to grow at 9% offers better long-term prospects than can be found overseas.
Besides power and financial services, Mukesh, the world’s fourth-richest man is eyeing infrastructure such as roads, the source said. A return to telecom may be a more distant prospect.
“I’m not saying entry is imminent, but I would be surprised given the man’s reach, his connections and business acumen if over the next two or three years he doesn’t do something meaningful either in banking or in telecom,” said Saurabh Mukherjea, head of Indian equities at brokerage Execution Noble.
“Power generation -- that’s almost a given, that every large industrial house in India is having a crack at it,” he said.
Anil lost this month’s Supreme Court ruling in a gas pricing dispute with Mukesh that embroiled New Delhi and ultimately brought the brothers to the negotiating table.
He is believed by some analysts to have agreed to cancel the pact that stopped them from competing in exchange for better terms for gas supplied by Mukesh.
Also, Mukesh, 53, can no longer block Anil from tying up with rivals, the way he did in 2008 when he thwarted a bid by Anil’s Reliance Communications to merge with South Africa’s MTN by asserting a right of first refusal.
Having just splashed out $1.8 billion on third-generation mobile spectrum in India and facing the need to spend billions more on network construction, Anil may find that freedom handy if he chooses to bring in outside investors.
If Anil, ranked 36th on the Forbes rich list, had prevailed in court, it would have cost Reliance Industries $700 million a year in lost cash flow by selling him gas at the lower price agreed earlier by the two brothers, according to Ambit Capital.
Mother Brokers Peace
In the 2005 split of the business empire, the low-profile Mukesh walked away with the shiny if stodgy jewel -- Reliance Industries, which has interests in oil and gas, petrochemicals and textiles.
Anil, 50, got the telecom, power and financial services businesses and has branched into media and entertainment, sectors that appear to suit his flashier public persona.
Neither was allowed to compete on the other’s turf.
In a saga that reads like a Bollywood script, complete with a long-suffering and heroic mother, Kokilaben has since then sought to broker peace between her squabbling sons, who though not on speaking terms live with her in the same Mumbai building.
Mukesh is building a $1 billion, 27-story home of his own.
Under their new agreement, the only area where Reliance Industries cannot compete with Anil is in gas fired power generation. Mukesh is free to invest in the high-growth, newer economy industries that will benefit from rapid expansion of Asia’s third-largest economy, as well as coal-based power.
Reliance Industries, India’s biggest listed company, is forecast by Goldman Sachs to generate free cash flow of $18 billion between this year and the financial year that ends in March 2014, giving it plenty of firepower for investment.
Mukesh has a soft spot for telecom -- he founded the firm that became Reliance Communications and was ceded to Anil in the split -- although he is unlikely to dive into a cellular market locked in 15-player fight to the death. With his cash, he could eventually swoop in for a capital-starved operator.
Financial services are also on Mukesh’s radar screen. Anil’s Reliance Capital is engaged in insurance and fund management. Both sectors are attractive to Reliance Industries, according to the source, and may see consolidation as undercapitalised players look to exit.
Mukesh Ambani is among several Indian tycoons also seen coveting a banking licence if rules eventually allow.
“For a company that has big project execution and scale as one of the core strengths, we feel thermal power; telecom, media and entertainment and financial services could be areas that could attract the company,” brokerage IDFC said in a note.