Competitive rivalry

The Ambanis should share the peace treaty with investors

Indians love happy families, even if fraternal rivalry is the stuff of popular epics, and the image of a loving mother bringing quarrelling brothers together is a sure shot tear-jerker. So, it is not surprising that the stock market reacted positively to the Sunday truce between the Ambani brothers, Mukesh and Anil. The new pact will allow the brothers to embark on ventures in all areas with only one exception — Mukesh Ambani will stay away from the gas-based power generation business till 2022. Both the brothers issued statements saying that the cancellation of the 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, petrochemicals, telecom, power and financial services. This is all good news for the family and for investors, though it must be recognised that both the brothers did well for themselves and for their shareholders even during the difficult days of fraternal rivalry.

To be sure, the new agreement is a consequence of the Supreme Court verdict earlier this month asking the two brothers to renegotiate their gas agreement within the framework of government policies and prices. That verdict also meant that the two brothers would have to rewrite the terms of sale of Mukesh-controlled Reliance Industries Limited’s (RIL’s) Krishna-Godavari (K-G) basin gas to Anil-controlled Reliance Natural Resources Limited (RNRL) and the latter has to pay much more for the gas that it would have otherwise paid under the family settlement. Indeed, the new arrangement expresses the joint hope of reaching a conclusion soon on K-G gas supplies to RNRL. Just as Anil Ambani-controlled ADAG can bring in new investors to its telecommunications or power ventures, without fearing any right-of-first-refusal clause invoked by Mukesh Ambani (as it happened when Reliance Communications was planning an alliance with MTN of South Africa), RIL too can embark on areas like financial services and even telecommunications. From the market’s perspective, competition between the two brothers and their companies in new areas can only benefit the economy and consumers. Shareholders of these companies, too, should benefit as their companies’ expansion plans will no longer be constrained by a family settlement between their majority shareholders. However, for this reason, shareholders should know more about what the truce means for them and if it is destined to last. Little was known about the details of the family settlement that enforced the non-compete agreement upon the two brothers until the K-G gas supply dispute went to the courts. The government may have been aggrieved over the manner in which a family agreement had decided to sell K-G gas at a certain price. The Supreme Court verdict may have resolved that issue somewhat. For this reason, the details of the new settlement between the two brothers should be made public, so that the shareholders of RIL and ADAG can benefit from greater clarity on the likely impact the new deal will have on their companies.