BOMBAY, 22 November 2004 — “Well, there are issues which are ownership issues, however, these are in the private domain.” It was finally out in the open. Mukesh Ambani, chairman of Reliance Industries (RIL), confirmed to a private business news channel, CNBC, that there are differences between him and his brother Anil. However, he quickly went on to reassure that, “investors have no cause to worry, as the issues will have no bearing on the functioning of the Reliance group”.
It was said that the stock market caught a fever whenever Dhirubhai Ambani sneezed. Well, now with Dhirubhai Ambani not there and talks of an inevitable split between the Ambani brothers gathering more wind, it’s a surprise that the stock market did not have a cardiac arrest!
Ever since the demise of Dhirubhai, there have been rumors of a growing rift between the two brothers — Mukesh and Anil Ambani. Infact the rumors grew only stronger when in December 2002, Anil Ambani stayed away deliberately from the launch of the group’s foray into telecom, Reliance Infocomm. The rumors never quite died down despite the elder sibling, Mukesh, asserting to the media that there was ‘perfect understanding’ between the duo. Under these circumstances, it thus seems right that Mukesh finally decided to set the record straight and made a clean breast of the rift.
This admission by Mukesh took Corporate India by shock though a split was always expected. The Ambani brothers are ever so sensitive to the stock markets and surely, Mukesh would have weighed the repercussions of making such a statement. Knowing this fully well, the elder Ambani has made this statement, which could well mean that the rift is finally official.
Though everyone says, “I told you so”, when the eventuality finally happens, the picture is completely different. And here at stake are not just the fortunes of the two brothers but also that of the millions of Reliance shareholders spread all over the world.
There are two big questions which arise from this news of the rift — If a split does come about, how will the companies and assets be split? What should the shareholders of Reliance group do?
Currently, after the demise of Dhirubhai, the Reliance group is run by the two brothers where Mukesh looks after Reliance Infocomm, Reliance Petroleum and IPCL. Anil looks after Reliance Energy and Reliance Capital which includes the asset management company, insurance, the venture capital arm and the company’s treasury operations.
It would be naive to say that each brother will take what he runs and that’s the end of the feud. The main bone of contention will be the ownership of the flagship Reliance Industries, which constitutes about 75 percent of the total group turnover. RIL has substantial shareholdings in the group’s other major companies like Reliance Energy Ltd., Indian Petrochemicals Corporation Ltd. (IPCL) and Reliance Infocomm and hence is critical in any formal division of the group. It holds 46 percent in IPCL and 45 percent in Reliance Infocomm, and has a substantial indirect shareholding in REL. The pure promoters’ holding in RIL stands at 34 percent and this holds the key to the future of the group.
Though Mukesh Ambani has reassured the shareholders that the feud will not affect the performance of Reliance Industries, it would be quite dumb to believe that fully. The Ambani family owns 46.67 percent of the company’s equity and the two brothers occupy decisive positions in the management. Well, if the top management members do not agree on issues, it is bound to impact performance.
When Mukesh Ambani referred to “ownership issues”, he could have meant feuds which could have emerged from the late Dhirubhai Ambani not having left a will as he died intestate in July 2002. The family’s shares are held through a series of investment firms and other companies. It is not clear who controls which company or how many of the shares. Dhirubhai Ambani left behind two sons, Mukesh and Anil, and two daughters, Nina and Deepti, both married.
So how much are the brothers fighting for? The promoters group (along with persons acting in concert) holds 34 percent in Reliance Industries. Of this 34 percent, 5 percent is held in equal proportion, between Mukesh and Anil Ambani. The remaining approximately 29 percent is held via an intricate web of investment companies, set up by Dhirubhai Ambani. Based on the market capitalization on Friday, the Ambani’s stake works out to Rs.255.00 billion. Reliance Infocomm is yet to be listed but equity analysts estimate it to be worth roughly over Rs.450.00 billion. As Mukesh and Anil hold 55 percent in Reliance Infocomm, their stake is around Rs.250.00 billion. Collectively, the issue at stake is around Rs.500.00 billion.
So how much of this does Anil or Mukesh get? Lawyers confer that it would be divided equally between the two. But then, if the other family members also stake a claim, then things could get messy. Foreign institutional investors hold about 23 percent in RIL.
Now to the second question — what should the shareholders of the Reliance group do?
There are 18, 82, 34, 320 shares held by the Indian shareholders which is 13.48 percent of RIL’s equity. 1, 20, 74, 985 shares are held by NRIs and OCBs constituting 0.86 percent of RIL’s equity.
After the statement of Mukesh Ambani, the stock markets plunged and there has been incessant selling on all the Reliance group company counters. Analysts say that this could be the initial reaction and once the news is further confirmed by the brothers, then the stocks could slip further. But there is no need for panic selling as despite the feud, Reliance is a professionally run company. A long drawn legal battle might affect the performance in the short term but investors should hold Reliance, as it is fundamentally a very sound stock. It would be prudent to refrain from making fresh purchases on the counter.