Will Ambani brothers extend their bonhomie beyond telecom?

They may cooperate in banking sector next.

By R. Chandrasekaran

CHENNAI: The coming together of the Ambani brothers, Mukesh and Anil, of the renowned Reliance empire through a telecom business deal has given enough food for thought for the forecasters to say whether it can be expanded to other areas as well. Though the deal could be termed as a win-win situation for both the brothers, the deal is a much-needed one for Anil more than Mukesh as it allows monetizing excess capacity and realizes some money out of it. This could well be a beginning of a new chapter in their relationship after 8-yeas of split.

On Tuesday, Mukesh Ambani controlled Reliance Jio Infocomm and Anil Ambani managed Reliance Communications have struck a deal allowing the former to access the latter’s domestic and global optic fibre infrastructure involving an upfront payment of Rs.12 billion.

Ever since the brothers scrapped the non-compete agreement in May 2010 following the unfavorable court verdict to Anil in the gas allocation case for its planned power projects and the cancellation of Reliance Communications merger with South Africa-based MTN in July 2008, there has been a wide speculation of both of them coming together. Reliance group was split in June 2005 through a settlement after the feud between the brothers came to the fore in November 2004 following the death of Dhirubhai Ambani in July 2002. Dhirubhai was not only the father of the two brothers, but also a founder of the empire that was built brick by brick.

The scrapping of non-compete agreement had allowed Mukesh Ambani to buy Infotel Broadband Services for Rs.48 billion to redial the telecom sector in June 2010. This deal has forced Mukesh either to scout for sharing of towers with existing players or build a fresh infrastructure for it to launch 4G services. While any deal with existing telecom provides would allow them to enter the field immediately, launching of its own infrastructure would only delay the unveiling of 4G services.

A report said that a telecom service provider offered its infrastructure for sharing to Mukesh a year ago, but the Reliance Industries chairman spurned the offer quietly since the telecom owner was said to be a competitor to RIL’s 4 G services. Therefore, it was obvious that Mukesh wanted a deal with an existing operator to roll out its services to beat the heat and Anil’s Reliance Communications fitted the bill very well.

Industry experts see similar deals in the pipeline for the Ambani brothers. This includes intra-city fibre network, where Reliance Communication covers over 100 cities and towns and the leasing out of its 45,000 towers. This could fetch additional billion of rupees for cash-starved and debt-ridden Reliance Communications.

The shareholders of both the group companies are rejoicing the return of the bonhomie as the stocks advanced on Tuesday greeting the deal. Moe than the deal, the burying of the hatchet between the brothers is viewed very positively since it could widen the scope for business alliances in the coming months or years. Most of the analysts and industry experts have welcomed the deal and sees scope beyond telecom sector.

One such area could be the banking sector. It may be recalled that the Reserve Bank of India has recently disclosed that it is ready to grant license for new banks upon fulfilling the requirements such as group net worth and so on. Anil Ambani’s Reliance Capital is in the financial services sector and could approach the RBI for a license. Though there is no indication, the possibilities are both the Ambanis may have equal shareholding in the proposed bank, if it materializes.

The other possible area is oil and gas, which Anil has been trying hard to get into it on its own without much success. While Mukesh controlled Reliance Industries have all the wherewithal to do it alone, Anil may be interested in pushing for a slice of pie as it could guarantee gas supply to some of the planned power projects. However, whether Mukesh will relent remains a question. But a changed situation could bring in a surprise and allow the access of infrastructure for Anil to probe the sector.

The change of perception between the brothers and the coming together has been in the air for quite some time. This could also be seen from the way Reliance Industries has parked its excess funds in Anil managed Reliance Capital’s mutual fund schemes in the last 6-8 months’ time. Currently, RIL is estimated to have parked over Rs.8 billion in Reliance Capital managed mutual fund schemes.

Significantly, the role played by the Ambani brothers Kokilaben is crucial in bringing them together. She hammered out a settlement between them in 2005 and a few years later brought them together in Dhirubhai’s anniversary in Gujarat. Even the Court had advised the brothers to approach their mother for a compromise in gas allocation case a few years back.

The current deal would undoubtedly allow both the Ambanis to capitalize on each other’s business assets and strengthen their respective holds. While amalgamation of the group looks remote, there could be more business relationship in the coming months and years.

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