Mumbai: Mukesh Ambani-led Reliance Industries Ltd on Sunday announced its entry into financial services through a joint venture with the New York-based D.E. Shaw Group.
India’s largest firm by market value said in a statement that it will offer an array of financial services, without providing details on investment, the stake each partner would hold, or the specific services the venture would offer.
A company spokesperson said the structural details will be made public in a few days.
Mukesh Ambani and his brother Anil ended a pact last year that had prevented them from competing in each others’ businesses.
Anil Ambani’s Reliance Group offers financial services through Reliance Capital Ltd, owner of India’s largest mutual fund manager.
Mukesh Ambani made an entry into telecommunications last year with a Rs4,800 crore acquisition of Infotel Broadband, the only company to win a national licence for broadband wireless spectrum in a government auction.
An analyst said a partnership with D.E. Shaw will be a positive for Reliance Industries.
“They have made their intentions about growing big in the financial services space very clear,” said S.P. Tulsian, a Mumbai-based independent stock market analyst. “It might go big in consumer finance and banking.”
Reliance Industries’ move is significant in the context of Reserve Bank of India (RBI) being ready to allow big industrial houses to set up banks. The regulator’s draft guidelines on new bank licensing norms are awaiting the finance ministry’s clearance.
Anil Ambani announced at Reliance Capital’s annual general meeting in September that he intends to establish a bank once the regulator allows it.
The Economic Times newspaper had reported in August last year that Reliance Industries could tie up with D.E. Shaw and Co. Lp. to launch a $700-800 million infrastructure fund in India.
D.E. Shaw is a global investment and technology development firm founded by David E. Shaw, formerly a teacher of computer science at Columbia University in the US.
The firm, described by Fortune magazine in 1996 as “the most intriguing and mysterious force on Wall Street”, operates one of the world’s largest hedge funds by assets under management.
D.E. Shaw’s website says it has more than 1,300 employees and approximately $19 billion in investment capital as of 1 January. It has offices in North America, Europe, West Asia and Asia.
“The D.E. Shaw Group is a natural partner for Reliance,” Mukesh Ambani said in the statement on Sunday. “Together we look forward to participating in the growing Indian financial services sector.”
The joint venture would draw upon the core competencies of both firms to “develop a platform that can serve the growing needs of Indian companies and individuals.” Anil Chawla, a managing director heading D.E. Shaw’s private equity operations in India, said in the same statement.
Reliance Industries is expected to have cash and cash equivalents to the tune of $22 billion by fiscal 2012, according to an HSBC Securities and Markets 22 February report.
This includes the $7.2 billion that it would receive from BP Plc that in February picked up a 30% stake in 23 oil and gas blocks operated by the Indian firm. BP could pay Reliance Industries an additional $1.8 million based on future commercial success in the blocks.
Some analysts have said Reliance Industries may struggle to maintain its historic earnings growth unless it could effectively deploy the excess cash on its balance sheet.
A 22 February Deutsche Bank report said Reliance Industries could be net cash positive to the tune of $5 billion in fiscal 2012. “If RIL does not deploy this cash favourably, its return on equity could be adversely affected,” the report said.
In December, Mint had reported that Mukesh Ambani would be investing $200-250 million in proprietary funding to start private equity operations.
Vivek Gupta, the former head of AT Kearney in India, has been appointed to lead the venture.