Ambani brothers end non-compete pacts

Ambani brothers end non-compete pacts

New Delhi: India’s billionaire Ambani brothers took a step towards reconciliation in their long-running feud on Sunday, ending non-compete agreements in a move they hoped would lead to cooperation between the two groups.

Both groups said they aim to reach a conclusion soon for a gas supply agreement between Mukesh Ambani’s Reliance Industries (RIL) and younger brother Anil’s Reliance Natural Resources that had been at the heart of their dispute.

The brothers will now be free to compete on each other’s turf, with the exception of gas-fired power plants, removing a source of friction between the two conglomerates and potentially giving a lift to shares in both groups.

“RIL and Reliance ADA Group are hopeful and confident that all these steps will create an overall environment of harmony, co-operation and collaboration between the two groups," they both said on Sunday.

The statement comes two weeks after Supreme Court ruled in Mukesh Ambani’s favour in a bitter public dispute over gas pricing that had riven India’s richest family and raised questions about the role of big business in government policy.

While the feud had captivated the attention of India it had been a major distraction for both groups and the government.

“This gives more clarity, less ambiguity. In the last few years, the two brothers have spent more time in court, now they can concentrate on their businesses," said Jagannadham Thunuguntla, equity head at SMC Capital in New Delhi.

“The speed with the two brothers have reached a solution is slightly fascinating, because everybody expected it to be long-drawn process. There might be a relief rally in both groups’ stocks tomorrow as it removes ambiguity," he added.

Reliance Industries, India’s largest listed firm, and Anil’s Reliance ADA Group said they agreed to cancel all existing non-compete pacts the groups had signed in 2006 and entered into a new non-compete pact only for gas-based power generation.

“This is more positive for Reliance Industries than R-ADAG group, because this gives Reliance an opportunity to look into expansion in other areas," said S.P. Tulsian, an independent investment consultant. “You can’t rule out the possibility of Reliance entering in sectors such as telecom," he said.

Family feud

The two brothers are estimated to be worth a combined $43 billion and both live in Mumbai but had not been on speaking terms during their dispute. They split the business empire inherited from their father Dhirubhai Ambani in a 2005 deal brokered by their homemaker mother, Kokilaben.

Mukesh, 53, got the jewel — Reliance Industries, which has interests in oil and gas exploration, petrochemicals, infrastructure and textiles. Anil, 50, got the telecoms, power and financial services businesses.

As part of their agreements announced on Sunday, Reliance Industries will not enter the gas-based electricity generation business before 1 April, 2022, with an exception made for its captive gas-based power plants, the groups said.

The two had clashed over the gas and telecoms businesses.

“These developments will eliminate any room for further disputes between the two groups, on matters relating to the scope and interpretation of the non-compete obligations," the two groups said in their statements on Sunday.

Neither brother was available for comment.

Gas dispute

India’s highest court on May 7 ordered the brothers to renegotiate within six weeks a private natural gas supply contract between Reliance Industries and Reliance Natural.

The new contract must abide by a government price of $4.2 per million metric British thermal unit (mmBtu), compared with $2.34 per mmBtu the brothers agreed on in 2005 for a 17-year period.

“We hope to conclude these negotiations very soon," the two groups said in Sunday.

The gas case had been closely watched by foreign investors due to the lack of clarity on the government’s energy policy and the court’s ruling raised fresh concerns about India’s attractiveness to investors in the energy sector because it affirmed the government’s right to set gas prices.

“At what price will the gas be given, whether RNRL will be an intermediary, or Reliance Power will get direct gas, I think all these questions will be cleared over a period of time, as dust settles down," said Gaurang Shah, assistant vice president at Geojit BNP Paribas.

Reliance Power is controlled by Anil Ambani.

“But overall this is a very good move for the market and for both the group companies," he said.