Ambanis seal deal, finally

Reliance Industries, IPCL go to Mukesh; Infocomm, Energy and Capital for Anil.

The most high-profile ownership battle in the history of corporate India ended today with the Reliance group announcing a settlement between the Ambani brothers "" Mukesh and Anil.

The two brothers signed on the dotted line along with ICICI Bank CEO and Managing Director K V Kamath, Deputy Managing Director Kalpana Morparia and Cyril Shroff of the law firm Amrchand & Mangaldas at 4:00 am. An announcement made by their mother, Kokilaben, hours later said Mukesh would get control of Reliance Industries and Indian Petrochemicals Corporation Ltd (IPCL), while Anil would take over the reins of Reliance Infocomm, Reliance Energy and Reliance Capital.

The two camps have also agreed on a no-compete agreement for the next five years. Media savvy Anil was quick to tell reporters that this was the beginning of a new dawn for him, whereas Mukesh along with his wife quietly left for Goa to attend the wedding ceremony of the daughter of his close aide, Anand Jain.

Soon after Kokilaben's statement, Anil Ambani, vice-chairman and managing director of group flagship Reliance Industries, resigned from the board and abstained from attending the meeting convened today to kick off the settlement process.

In a related development, Anand Jain resigned from the board of IPCL Ltd. No details of the settlement formula were available. While everyone was tightlipped, the Reliance Industries board issued a terse statement later in the day accepting Anil's resignation and authorising the Corporate Governance and Stakeholders' Interface Committee to examine the relevant issues, including statutory and legal requirements, for a scheme of reorganisation. The committee will have its first meeting on Tuesday.

The board also empowered the four-member corporate governance committee, led by independent director Y P Trivedi, to avail of professional and legal expertise to advise on preparing the reorganisation scheme expeditiously. The other members of the committee are D V Kapur, M P Modi and S Venkitramanan.

Reliance Industries said the decision to consider a proposal to reorganise the business was in the light of resolving the issues between the promoters and according to Kokilaben Ambani's principle of ensuring the highest shareholder value. Apart from Anil Ambani, S Venkitaramanan also did not attend the meeting.

Reliance was not forthcoming on whether the settlement meant a division of responsibility or a split of the Reliance group in two. However, sources close to the development said the Reliance empire would be divided into separate groups.

Sources indicated that the two groups could continue with the Reliance tag. The settlement will take place in line with the formula worked out by Kamath. The valuation of the group's assets was done by Nimesh Kampani of J M Morgan Stanley.

In addition to the division of companies, Kamath is believed to have suggested a partition of the Ambani family's holdings in Reliance Industries in a 30:30:40 ratio, with Dhirubhai Ambani's widow retaining 40 per cent of the family holdings (10 per cent will be split between her two daughters, Dipti Salgoacar and Nina Kothari and her two sons obtaining half of the remaining holding). Trivedi declined to provide details of the future course of action to be taken by the group to implement the divide. He added that it might take at least six months to implement the division.

Sources close to the development said the settlement would create a new holding company that would own the controlling shares of the companies to be taken over by Anil Ambani, namely Reliance Energy, Reliance Infocomm and Reliance Capital.

They added that the new holding company would replicate the shareholding of Reliance Industries, so that no minority shareholder would lose out in the split.

Since Reliance Industries, which goes to Mukesh, will be valued at more than the new holding company, Mukesh will, in effect, have to pay Anil cash as part of the mutual transactions.

Trivedi said the settlement would not have taken place without the efforts of Kokilaben. "She (Kokilaben) is the main force behind the settlment," he said.

The Reliance Industries board expressed its 'deep appreciation of the sincere and painstaking efforts taken by Kokilaben Ambani in working towards the settlement that will further enhance the value of the Reliance group.'

Kokilaben's statement said 'I have amicably resolved the issues between my two sons, Mukesh and Anil, keeping in mind the proud legacy of my husband, Dhirubhai Ambani.' It added, ' My husband's foresight and vision and the values he stood for combined with my blessings will guide them to scale new heights.'

 

THE ROAD AHEAD

PROSPECTS FOR MUKESH'S BUSINESSES

Refinery division
This division is expected to continue reporting gross refining margins (GRMS) that are better than the benchmark Singapore refining margins.

Rollout of retail outlets proceeding at a slower pace than anticipated.

Petrochemicals Division and IPCL
The petrochemical market is expected to remain tight till 2007. Petrochemical capacity to rise by 32 per cent by 2007.

Polymer demand has shown signs of reviving but the concern is regarding the high prices of key inputs like naphtha. Margins for the polyester business are anticipated to remain strong given signs of weaker prices of intermediates.

Oil and gas
High proven reserves. Gas from the KG Basin will be available by 2008. Oil and gas will increasingly account for a far larger proportion of RIL's profits.

AND THOSE FOR HIS YOUNGER BROTHER'S

Power
The company is expanding its distribution network but average realisations are expected to be sluggish, given the rising cost of fuel. Meanwhile, the upturn in the power industry's capex cycle should help the company's EPC and contracts segment expand aggressively. The Dadri project is dependent on gas from RIL.

Infocomm
Reliance Infocomm achieved a break-even at the net profit level last quarter. Its EBITDA margins of around 25 per cent in the quarter, however, are considerably lower than the 35 per cent margin Bharti enjoys.

This gap is expected to reduce for two reasons "" subscriber growth is expected to take care of Infocomm's high fixed-cost base and, secondly, efforts to clean up the subscriber base of persistent defaulters would result in lower bad debts.

Infocomm's subscriber growth had dropped last year, but with the uncertainty having gone, growth is expected to pick up on the back of a roll-out in more towns. Listing will unlock value.