As corporate India watches with astonishment and glee, the fight between the Ambani brothers threatens to get murkier everyday.The question is, will the Rs 100,000 crore Reliance Empire – a shining example of phenomenal, if controversial entrepreneurship – will go the way of many Indian industry houses -- torn apart by family squabbles?
That would be ironic. Reliance was one of the few groups, where the second generation, seemed every bit as bright and visionary as the legendary founder, Dhirubhai Ambani.
As things stand, it is clear that the problems between Anil and Mukesh have reached a stage where investors and lenders are demanding some resolution and clarity over the ownership and control of the group – especially the flagship Reliance Industries Ltd. On Monday, Mukesh Ambani issued a statement that was supposed to settle all issues regarding who controlled the flagship. He said that his father had the foresight to decide on the succession. On Tuesday, in an email to Reliance’s 80,000 employees of Reliance Chairman Mukesh Ambani wrote: “Shri Dhirubhai Ambani had taken all steps to separate ownership from management and has settled all of them within his lifetime. There is no ambiguity in his legacy that that Chairman and Managing Director is the final authority on all matters concerning Reliance”. The email further says that in its evolution, there have been times when Reliance was subject to “speculation, sensationalism and misrepresentation”, but each time “we have faced the challenge head on and emerged stronger and more resolute than ever before”.
How does one read this statement? Especially when there has been no public communication from his brother Anil?
Here is what I have gathered after speaking to a variety of investors, capital market intermediaries, company sources, official sources and bankers (all of them want to remain off-the-record).
First, that the promoter holding in Reliance is held through a complex, double layer of investment companies and that the final power over these, obviously vests with the Chairman of Reliance – Mukesh Ambani. Even if the brother decides to split and go their separate ways, it is unlikely that the flagship Reliance Industries will be splintered due to the squabble. I also learn from several leading bankers that there is no ambiguity over their support of Mukesh Ambani.
On the other hand, I learn that Anil has been offered a settlement that has been discussed by the entire family. It comprises transferring to his control Reliance Energy, Reliance Capital and a fat monetary settlement of Rs 10,000 crore. However, recently Anil Ambani has been demanding that the Krishna Godavari gas be given as fuel to Reliance Energy’s power projects. This was apparently denied by Mukesh. Meanwhile, the dispute was escalated with Mukesh Ambani’s statement to CNBC about ownership. Mukesh Ambani, on the other hand, has sole responsibility for Reliance Infocom, which has quietly been desubsidiarised from Reliance Industries, but still carries an enormous investment of nearly Rs 11,000 crore from the parent.
Meanwhile the official line from Reliance sources remains that the media has blown the issue out of proportion and there is no real feud between the brothers. At the same time, insiders say that there is indeed a move to make Nita Ambani the vice-chairman of Reliance Industries and to bring in Mukesh Ambani’s trusted friend, Anand Jain as Managing Director, pushing out Anil Ambani. Anand Jain was Managing Director of Reliance Capital and also runs his own set of companies that are raw material suppliers to Reliance. And thirdly, that there is a clear move to curtail Anil Ambani’s powers and access to the group.
Is this possible? Certainly, if the board of directors supports such a decision. Moreover, even if the promoter shareholding is equally split between Mrs. Kokilaben Ambani and all four siblings, it will not give Anil Ambani enough shareholding to force a change or demand a board position. And that would logically settle the “control” issue. He will still remain a shareholder and earn a hefty dividend.
However, this does not mean that Anil Ambani will quietly bow out of the group. First, it is not yet clear that Mrs. Kokilaben Ambani and her two daughters support Mukesh Ambani’s claim of full control. Secondly, if it is an all out war, then Anil can do a lot of damage to the Reliance Empire because he knows too much and also seems to have the ears of a section of the media.
Mukesh Ambani’s statement to employees hints at such a battle. But when Reliance fought the government and the relentless attack of the Indian Express group in the 1980s, the family was banded together tightly in the fight. This time, it will be an internal war, with the most trusted confidants ranged on either side.
Such a battle can be destructive and the group that has held together through a variety of allegations and controversies may face its toughest battle yet.
The next few days will reveal which way things will go. Will good sense prevail, or will we see India’s bloodiest family battle. After all, everything that Reliance does, it does bigger than anybody else.