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Business News/ Companies / News/  Brotherly love means $3.5 bn value boost for Anil Ambani
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Brotherly love means $3.5 bn value boost for Anil Ambani

Ambani brothers’ deal adds $3.5 billion to the market value of Anil’s listed companies in five weeks

The combined market capitalization of Anil Ambani’s six companies rose to $12.1 billion as of Tuesday, up from $8.6 billion on 1 April, a day before India’s richest brothers announced a deal and said more partnerships would follow. Photo: AFP (AFP )Premium
The combined market capitalization of Anil Ambani’s six companies rose to $12.1 billion as of Tuesday, up from $8.6 billion on 1 April, a day before India’s richest brothers announced a deal and said more partnerships would follow. Photo: AFP
(AFP )

New Delhi:Anil Ambani’s first cooperation with his older brother Mukesh Ambani after eight years meant more than family peace. It has also added $3.5 billion to the market value of the younger brother’s listed companies in five weeks.

The combined market capitalization of Anil’s six companies rose to $12.1 billion as of Tuesday, up from $8.6 billion on 1 April, a day before India’s richest brothers announced a deal and said more partnerships would follow.

Mukesh Ambani agreed to pay for using Reliance Communications Ltd’s fiber-optic network, helping Anil’s flagship company generate additional income after its profit fell in 13 of the last 14 reported quarters. The pact was the first after they scrapped a non-compete accord three years ago, following the 2005 feud that split the group.

The market is hoping that big brother can support Reliance Communications by providing some meaningful business to younger brother, said Walter Rossini, who manages about $200 million in Indian assets including Reliance Communications at Aletti Gestielle SGR SpA in Milan. The first deal was a symbolic one. Now let’s see if the commitment to support the business continues.

Shares surge

Shares of Anil’s six companies have advanced since 1 April. Mumbai-based Reliance Communications has doubled, Reliance Power Ltdhas surged 23%, Reliance Capital Ltd and Reliance Infrastructure Ltd have both climbed 19%, Reliance Mediaworks Ltd has gained 14% and Reliance Broadcast Network Ltd has advanced 18%.

In contrast, Mukesh’s Reliance Industries Ltd has risen 6.3%, and the benchmark S&P BSE Sensex is up 5.4%.

Reliance Industries spokesman Tushar Pania and Reliance Communications spokesman Rajeev Narayan both declined to comment on the share price moves and on any new deals between the two companies.

Mukesh’s net worth on Tuesday rose 1.9% to $23.8 billion, ranking him the 26th richest in the world, according to Bloomberg Billionaire’s Index. Anil’s net worth gained 2.3% to $8.3 billion.

Reliance Jio Infocomm Ltd, a unit of Reliance Industries, will pay 1,200 crore ($222 million) to share the fiber optic network of Reliance Communications to start a fourth- generation broadband service, the two companies said on 2 April. Reliance Communications will have reciprocal access to optic-fiber infrastructure to be built by Reliance Jio and the two will share telecommunications towers in the future.

Business split

The 2005 battle over control of Reliance left Mukesh, 56, with the petrochemicals, oil and natural gas businesses. He ceded ownership of telecommunications, a business started by him, to Anil, 53, who also took over power, financial services and entertainment. Both retained the rights to the Reliance name. The company was founded by their father Dhirubhai Ambani to trade spices and yarn in 1959. He died intestate in 2002.

The first indication of a rapprochement came in 2010 when the brothers scrapped an agreement that prevented them from competing in each others’ businesses. A year later they danced and prayed in their ancestral village on the eve of their father’s 80th birth anniversary along with their families.

Reliance Communications will probably post its third consecutive decline in quarterly profit when it reports on 10 May results for the three months ended March, according to analyst estimates. Net income may fall to 127 crore in the fourth quarter from 332 crore a year earlier, according to the median of 14 estimates compiled by Bloomberg.

The way the stock has run up has been excessive because nothing has really changed, said Harit Shah, an analyst with Nirmal Bang Equities Ltd in Mumbai. Maybe it would be justifiable if they were to successfully list a unit or make a deal that would resolve their balance-sheet problems, the things they’ve been promising for years.

Debt burden

Reliance Communications’ total debt rose more than threefold to 38,560 crore on 31 December from 11,910 crore in June 2006, according to data compiled by Bloomberg. Third-quarter profit fell 44% after interest costs surged 60%.

The mobile-phone operator’s attempts to reduce debt by selling its telecommunications tower unit Reliance Infratel Ltd have proven unsuccessful. A planned $2 billion share sale of its submarine cable assets in Singapore, hasn’t taken place after it was announced last year. The company signed two $1 billion deals with Alcatel-Lucent SA and Ericsson AB this year to lower the cost of running its networks.

Tariffs raised

Reliance Communications this week raised tariffs by 20% and cut promotional and concessional offers by as much as 65%. The tariff changes come as the company added subscribers in February after two months of declines.

With some of the smaller operators shutting down or scaling down operations, competitive pressure is easing, Gurdeep Singh, chief executive officer, wireless at Reliance Communications, said on 6 May. It is will also help pricing power move back to serious, long-term and pan-Indian scale operators and positively impact profitability, Singh said.

Reliance Communications last month also forged a roaming agreement with competitor Aircel Ltd to expand its network footprint without any upfront costs and said this was the first of more similar pacts it plans with other operators.

Mukesh’s Reliance Jio is also forming alliances with others including billionaire Sunil Mittal’s Bharti Airtel Ltd. Reliance Jio will use dedicated capacity on Bharti’s i2i submarine cable to extend its network to customers in the Asia Pacific region, they said on 23 April.

The deal with Mukesh could help Anil attract investments, said Raj Kothari, a London-based fixed-income trader at Sun Global Investment Ltd, which holds three of Reliance Industries’ bonds.

Mukesh’s promise has been a kind of bailout for Anil’s business, Kothari said. With Reliance Industries coming in, a world of options are opening up for Reliance Communications.

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Published: 08 May 2013, 09:20 AM IST
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