Ambani ceasefire: Competition or collaboration?

Will Sunday's rapprochement open a Pandora's Box? At first glance, going just by the statements that both Reliance Industries Ltd and R-ADAG released, it seems No.

All non-compete and first-right-of-refusal agreements between the two sides come to an end, with the only exception of gas-based power plants. RIL will stay away from that till March 2022.

From Monday, Mukesh's RIL can enter financial services or telecom or even thermal power, which till Sunday belonged to his brother, Anil. Likewise, ADAG can bid for oil and gas assets in India and abroad.

Says a group insider: "In any case, the businesses that began post-2005, like retail, metro, airports and other infrastructure verticals, were not part of any non-compete."

In the past five years, the family agreement, with its non-compete and first-refusal clauses, has popped its ugly head a number of times.

Gas supply to Anil's Dadri power plant, RCom-MTN merger, the rival bids for trans-harbour projects in Mumbai. The story of mistrust, ambition and one-upmanship has been long.

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No deal to breach now

"Technically speaking, yes, the floodgates have opened, but I don't think that will happen. I would take this statement at face value," says veteran Supreme Court lawyer and Reliance watcher, H P Ranina.

"Both brothers compliment each other, for the sake of the shareholders of their respective companies. I think they will put an end to this animosity."

Doubts persist among some. Take telecom, for example. Mukesh Ambani had to sacrifice Infocomm when the empire got divided. Some analysts feel this is perhaps the right time to revisit that dream, via acquisitions.

"Reliance is sitting on a pile of cash. They may explore some M&A (merger and acquisition) opportunities once there is more clarity," said an analyst, on condition of anonymity.

Or financial services or even media. Reliance Retail (of RIL) has captive subsidiaries such as Reliance Retail Finance, Reliance Retail Insurance Broking and Reliance Financial Distribution & Advisory, which can now evolve into full financial divisions, selling the entire gamut of third-party financial products.

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It's not far back that Reliance Retail and Citibank had explored a 50:50 joint venture to distribute the former's consumer finance products such as loans and credit cards.

The joint venture was expected to work as a non-banking financial company, with a combined investment of Rs 500 crore (Rs 5 billion). In fact, Citigroup's then global chairman, Charles Prince, was even supposed to visit India to sign the deal.

Says Hemant Sahai, managing partner of Hemant Sahai Associates - Advocates: "How the strategic balance of the two groups will pan out is tough to predict. But, I feel this agreement tilts in favour of Mukesh Ambani a bit. I feel Anil Ambani had to given in a bit to secure gas supply."

Sahai argues that Mukesh Ambani's businesses are brick and mortar, old-economy manufacturing ones, tough to break into.

While, R-ADAG has the asset-light businesses. "It will be easier for Mukesh Ambani to get into them if he wants to. The financial services, for example. The only thing Anil Ambani may want to farm into is, perhaps, oil exploration," he says.

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And, the hope

But, sources within the companies insist both brothers have enough on their plates already and it's unlikely they'd decide to cross each other's path in the near future.

RIL, sources say, would rather focus on expanding the E&P (exploration and production) business on a global scale.

"Shale gas is the next big frontier. We would like to cash in on this huge opportunity. Atlas Energy is just the beginning in that endeavour."

Even a CEO of R-ADAG, who did not want to come on record, said: "I don't see us getting into oil and gas tomorrow. These are tough businesses, that need detailed business plans, shareholders' approval. It's not so easy. Let's focus on what we already have."

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R-ADAG watchers say the group is stretched, thanks to its ambitious telecom and power foray. This is the best time to consolidate the existing portfolio.

"This should help us also in financial closures, to raise money. We are now more flexible to raise capital as, overall, we are looking at collaborating. Imagine when Reliance Retail starts selling our telecom products across their nationwide counters. It is bound to open a new revenue stream," says a senior R-ADAG official.

Many in R-ADAG say the ceasefire will be most beneficial for R-Com's future road map. Telecom is a cash guzzler and the environment is uncertain, with margins and profitability under severe pressure for most telcos. Without any first right of refusal, RCom can explore strategic partnerships without any worries.

As RIL's counsel said, the brothers have indeed bowled a googly. The guessing game has only begun. But, as an R-ADAG official says, the aim now is to wrap up the revised gas supply agreement at the earliest.

"We expect to get gas from RIL. Within 26 to 34 weeks, gas should come to us. This is a big day. A watershed for sure."