Divided stands India's Reliance

MUMBAI - After seven months of a bitter tussle in India's first family of business, the two feuding brothers, Mukesh and Anil, finally cut a deal over the weekend to split the giant Reliance group that their father Dhirubhai Ambani had built from scratch. Reliance's US$23 billion in annual revenues - larger than Coca-Cola's - represents 3.5% of India's gross domestic product (GDP) and accounts for 17% of the total profits of the country's private sector.

The truce was largely brought about by the 70-year-old matriarch, Kokilaben. After she set a deadline of July 6 - Dhirubhai's death anniversary - to settle the dispute, the two sides went into marathon meetings, and on Friday worked through the night at the Ambani palace in Mumbai to hammer out a solution that Kokilaben announced early Saturday. The deal, finalized after 18 hours of negotiations and involving top minds in banking and legal circles, was reached at 4 am on Saturday.

A deeply religious person, Kokilaben is said to have been warned by an astrologer that if the issue was not settled before July, it would drag on for years. Finally, she convinced her sons on a truce formula in which her two daughters - Nina Kothari and Dipti Salgaocar - will receive 5% stake each in the Reliance empire, Kokilaben herself, Mukesh and Anil will get 30% each.

The settlement ends the family discord that first became public in November. Dhirubhai Ambani had died two years ago without leaving a will, leading to the squabble over control of the sprawling conglomerate. The two brothers, who were a picture of unity when dad was around, began to develop strains and ego problems when it came to managing the empire by their own.

The deal now leaves the 48-year-old Mukesh in charge of cash cow and flagship Reliance Industries (RIL) and the erstwhile public sector IPCL (Indian Petrochemicals Company Ltd), with a total turnover of US$18.63 billion. Anil, 46, gets Reliance Infocomm, Reliance Energy and Reliance Capital, with a combined turnover of $2.27 billion.

RIL, which Mukesh keeps, is the second-largest company by market capitalization in India after state energy giant ONGC. It operates the world's third-largest refinery in a single location, in the western state of Gujarat, with a capacity of 660,000 barrels per day. With 21.55% of foreign funds, RIL is expanding its petrochemicals capacity to over 14 million tonnes per annum (mtpa) from 12 mtpa in the next few years to become the world's largest producer of polyester yarn and fiber. It has struck gas in the Krishna Godavari basin and has in place reserves of an estimated 14 trillion cubic feet. His other possession, IPCL, is India's second-largest petrochemicals company.

Though the companies that Anil has obtained as a result of the deal are puny in comparison to RIL, they are all in the sunrise sector, with promise of exponential growth. Energy, telephony, asset management and insurance are considered the most promising segments of Indian industry at the moment. With 11 million subscribers, Reliance Infocomm is India's largest cellular operator. Reliance Energy is the country's largest private-sector power company while Reliance Capital is India's fourth-largest private-sector mutual fund. Still, the difference may be compensated by Mukesh with a cash transfer to Anil. The amount, as the rumors go, is Rs100 billion (US$2.3 billion). The Reliance logo is also expected to be used by both brothers, but with some kind of a differentiating tag line.

The Ambani family and its associate companies own 46.76% of RIL, which in turn holds large stakes in the three companies allocated to Anil. The ownership issue will be clearly defined only after such cross-holdings are untangled through demerger. The stake held by the Ambani family through a web of more than 250 investment companies will be transferred to a set of investment companies. The shares will then be allocated to the investment companies owned by Anil, who will, in turn, surrender his interest in them to Mukesh. Both brothers will thus enjoy an equal stake in their respective entities. The two brothers have also agreed to demarcate their lines of businesses through a 10-year non-competition clause: Mukesh will not venture into power, telecom and financial services, while Anil won't enter petrochemicals, oil and gas.

Finance Minister P Chidambaram welcomed the Reliance settlement. He also said there was no reason to proceed with any inquiry into the charges of corporate governance issues that Anil had brought against Mukesh and the RIL board. The younger Ambani had raised several issues, including the sale of IPCL equity by Reliance Capital without making disclosures to the Securities and Exchange Board of India (SEBI). Throughout the crisis, the government had instructed state-run financial institutions, which own around 10% stake in Reliance Industries and 21% of Reliance Energy, not to take sides in the spat.

Commenting on the truce, the finance minister said: "I think their mother helped the Ambani brothers to a great extent." Throughout the ownership battle, Kokilaben stood behind their sons like a rock. Despite the tension, she made sure that both sons met her before attending office every morning. Though she did not participate in working out the nitty-gritty of the deal, she made it clear that both sons must get a fair share. Sources said Kokilaben, who normally retires early, left express instruction to be informed about the details of the deal in the wee hours of Saturday before agreeing to sign the agreement. Soon after the deal was announced by Kokilaben, the Reliance Industries board expressed its "gratitude for her painstaking efforts to solve the dispute".

Daughter of a postmaster in Jamnagar, Kokilaben studied only up to Class IX in a Gujarati school and didn't speak a word of English for many years after she married Dhirubhai. But she picked it up over the years to follow the business conversations between her husband and sons. Gradually she also started attending Reliance annual general meetings. When crisis struck, she rose to the occasion and single-handedly saved the day for Reliance, and millions of Indian investors and foreign players.

The settlement came as a huge relief to Reliance shareholders, of whom there are some 3 million - every fourth Indian investor has a Reliance share. The seven-month battle, however, hardly affected the company's shares, which have gone up by 12% since the bickering started. On Friday, rumors of a possible settlement pushed the shares up by another 2%, helping the Indian stock markets to recover early losses and close the week higher.

On Monday, the benchmark senstive index zoomed to cross the 7000-mark level at the midsession on the back of a volatile movement in the Reliance company stocks led by Reliance Energy and Reliance Capital. The two leading companies, which are in Anil Ambani's fold, were star performers, with Reliance Energy gaining by impressive Rs115 at Rs705.90, an all time high. Reliance Capital also notched up Rs65 at Rs308.

Political and bureaucratic circles are equally relieved. One of the major problems between the brothers was said to be the political ambitions of Anil, the more flamboyant of the two. Anil was recently elected to the Upper House with a ticket from a regional party of the politically powerful state of Uttar Pradesh, much to the chagrin of the ruling Congress party. Mukesh believes such open political alignment is harmful for the company in a country where businessmen tend to hedge their bets by spreading their resources among all major parties. Mukesh has since been making the rounds of top Congress leaders, including party president Sonia Gandhi, who was spotted last week disembarking from a Reliance plane on her visit to Russia as President Vladimir Putin's private guest.

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