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Does Mukesh Ambani plan to start a bank?

Last updated on: May 24, 2010 17:58 IST

Does Mukesh Ambani plan to start a bank?

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A Correspondent

The stock markets are happy that the brothers Ambani have decided to bury the hatchet. The shareholders are excited as this open up newer opportunities for both the Ambani groups to create more value. The government is happy that the internecine war between the brothers is over as it was bad publicity for the nation.

The upbeat mood was apparent on Monday when the stock markets shot up (the markets later simmered down on profit-taking): the Reliance Industries and Reliance-ADAG company stocks were the major gainers on Monday.

A source close to the Ambanis on condition of anonymity said that it was clear that in the latter part of the much-publicised Ambani battle, it was the elder brother Mukesh who was winning and held the upper hand. So why did he agree to a reconciliation was a question that many analysts have asked. Well, there are a few reasons, say industry watchers.

The broker, close to Ambani family, said that one of the biggest reasons for the truce to come about so swiftly was that it opens up new areas -- like financial services, telecommunications, media, among others -- for Mukesh Ambani to enter into. He said that the elder Ambani has ambitions to establish a major bank on the lines of private sector giants like ICICI Bank and HDFC Bank.

Reliance Industries has a ton of cash. And thus the Mukesh-led group could look to enter newer areas of business through mergers and acquisitions.

A Business Standard report said that there was a financial aspect to the patch-up: If Mukesh had gone back on the arrangement, then by the family understanding, he would have had to compensate Anil for the loss of value. Not just the 28 mscmd of gas for 17 years; by the agreement, ADAG also had 40 per cent right over any new discovery by RIL. That sum would have potentially have run into billions.

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Additional inputs: Business Standard


Image: Mukesh and Anil Ambani.
Photographs: Reuters
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Business Standard also quoted an analyst from a foreign brokerage house as saying: "Ask any Reliance old-timer what shareholders mean to the group. The last few days have seen a significant erosion in shareholder wealth for Anil Ambani group companies. The ceasefire will obviously soothe investor sentiments, especially for the ADAG pack."

The Mukesh Ambani-led Reliance Industries and the Anil Ambani-led Reliance ADA Group have cancelled all non-compete agreements -- a step they hoped would lead to cooperation between them. The non-compete pacts were signed in 2006.

As a goodwill gesture, RIL said it would not enter the gas-based power generation arena till 2022, for which the two sides would enter a separate agreement.

Both groups also said they hoped to reach a conclusion soon on the gas supply agreement between RIL and Reliance Natural Resources, at the heart of their dispute.

The earlier agreement, taken to court, between the two brothers concerned the price, quantity and tenure of gas supplies by RIL. It called for 28 million units of gas a day to be sold to RNRL at $2.34 per unit for 17 years.

The announcement came just weeks after the Supreme Court ruled in Mukesh Ambani's favour in the dispute over gas pricing and asked the two brothers to renegotiate their gas agreement within the frame work of government policies and prices.

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Image: Mukesh Ambani.
Photographs: Reuters
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"RIL and Reliance ADA Group are hopeful and confident that all these steps will create an overall environment of harmony, co-operation and collaboration between the two groups, thereby further enhancing overall value for shareholders of both groups," both the groups said.

The announcement to break the ice also came within days of Anil Ambani meeting Prime Minister Manmohan Singh and top cabinet ministers. His elder brother also did the same within a few days. It is reliably learnt the prime minister had repeatedly advised the two brothers to sort out their differences "in national interest". When the younger Ambani sought his intervention, the prime minister reportedly told the brothers they should seek their mother's advise and sort out differences.

The statements said "the cancellation of the existing non-compete agreement will provide enhanced operational and financial flexibility to both groups and greater ability to participate in high growth sectors such as oil and gas, petrochemical, telecom, power and financial services".

RIL said these developments will eliminate any room for further disputes between the two groups, on matters relating to the scope and interpretation of the non-compete obligations.

According to the settlement reached between the two brothers in 2006, Mukesh got the jewel, Reliance Industries, which has interests in oil and gas exploration, petrochemicals, infrastructure and textiles. Anil got the telecom, power and financial services businesses.

The non-compete pact was one reason why Reliance Communications, ADAG company, had to call off merger talks with South Africa's MTN group, after RIL threatened to block the sale if it wasn't given the first option to buy shares in RCom.


Image: Anil Ambani
Photographs: Reuters
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