ICICI Chief K.V. Kamath would hardly like to be described as a ‘‘Reliance family friend’’ for doing a professional valuation of Reliance assets along with a senior colleague. But then, anything to do with the Ambanis means being stuck with extreme positions — even during Dhirubhai Ambani’s lifetime, anyone dealing with the group had to be a ‘friend of Reliance’ or an enemy. The sibling war, which has threatened to destroy the Reliance empire as rapidly as it was built, has been fought on the same lines.
But in the last two months, Anil Ambani has climbed down from his insistence on remaining in Reliance Industries (with a clear demarcation of powers between him and brother Mukesh) to agreeing to a formal split and separation of assets.
The Kamath valuation report hence takes the battle to a decisive phase. The group assets have been valued anywhere between Rs 75,000 crore to Rs 100,000 crore (depending on which leak you rely on). It includes the listed group companies, such as Reliance Industries, IPCL and others such as Reliance Infocomm, the mutual fund, the general insurance company, Mudra Advertising, a travel agency, various infrastructure companies, as well as hundreds of little known investment and real estate companies.
All major industry houses in India spawn such investment vehicles by the hundreds, usually to hide a variety of inter-group transactions and movement of money. In Reliance’s case, this massive valuation exercise gives K.V. Kamath the most precise and extensive knowledge of the Reliance group holdings in India that anyone has ever had. The information may have been in the public domain in one form or the other, but it would be impossible to make sense of complex linkages without the family ratifying the true value of its assets.
According to a PTI report, Kamath has suggested a possible division of assets and possible control over group companies. It also says Dhirubhai’s widow, Kokilaben Ambani, had held meetings with the four siblings — Mukesh, Anil, Dipti and Neena — separately to help arrive at a solution. After all, both the brothers have publicly declared that they will accept any decision made by their mother.
I learn that Kamath, who is away at China, is not involved in the division of assets. If anything, Kokilaben Ambani is conferring with D.N. Chaturvedi, a close family friend and well-known Reliance auditor. Interestingly, the division of wealth is not in dispute — it is more or less a settled issue. The fight is all about who controls the key companies.
Sources say even during Dhirubhai Ambani’s lifetime, the patriarch had a 40 per cent share of the group wealth, while Anil and Mukesh had 30 per cent each. However, control over the maze of inter-linked investment companies vested with the Reliance chairman. Since the senior Ambani died intestate, his four children gave a legal undertaking renouncing their share of the father’s personal assets in favour of Mrs Ambani.
Which way will Kokilaben decide? By custom and convention, Mrs Ambani would be able to carve up her 40 per cent share between the four siblings (including the daughters) as she pleases, but that may not happen during her lifetime.
The real issue is the composition of Anil’s 30 per cent stake and dividing management control over the group companies. Although the decision maker will be Kokilaben Ambani, I learn that Anil will have a few options to choose from; but Reliance watchers believe that there will be many riders to these choices. My sources, who know the brothers, say nothing would disturb Mukesh Ambani’s position as Chairman of Reliance Industries Ltd (RIL), because that is apparently what Dhirubhai wanted. This view is in stark contrast to that of ‘sources’ quoted by the PTI report.
It is also generally accepted that Reliance Mutual Fund, Reliance Capital and Reliance Energy were already offered to Anil Ambni, but his camp insists that account for just 5 per cent of the group wealth. For a 30 per cent share of assets Anil would have to be given a whopping Rs 22,000 to Rs 25,000 crore in cash or corporate assets. That is probably why industry sources believe that IPCL too would go to Anil.
That still leaves the issue of control over Reliance’s oil and gas business unresolved. Gas at favourable rates will probably be a crucial input to both brothers’ businesses. Many believe that Mukesh’s decision to postpone the supply of gas to Anil’s much touted Dhirubhai Ambani Urja City in Uttar Pradesh had intensified the war; so it is unlikely that Anil will accept a split that doesn’t gives him some influence over ensuring gas supply at favourable rates. A possible but drastic solution being speculated by market circles is that the gas and oil exploration business could be spun off into a separate company, with joint control for the brothers, or their mother playing the arbiter in case of disagreement.
This arrangement still leaves the question of offering a substantial chunk of cash to the brother who doesn’t get the flagship company. If RIL remains with Mukesh, it stands to reason that he will have to raise tens of thousand crore rupees to buy out Anil’s share. It also means that the entire attempt to divide the family assets hinges on the younger Ambani’s decision. If he accepts a settlement, then the process of dividing the assets would begin and some of the bitterness could be healed.
Meanwhile, the flagship Reliance seems working hard to be build a huge cache of funds through a series of borrowings. Consider this: a few days ago it lined up External Commerical Borrowings (ECBs) of $136 million and $16 million. In December 2004, it signed a Euro 116.2 million financing with Deutsche Bank to refinance the import of equipment for the expansion of Reliance’s polyester businesses. At the end of December, Reliance Infocomm raised $750 million to finance its telecom projects. The money came from Export Development Canada (EDC) and a US Exim Bank guaranteed line of credit even while the company was battered by controversy. It is not quite clear if this is part of Reliance’s relentless expansion plans or some of it will help facilitate the division of assets and allow the Ambani brothers to go their separate ways.