labels: reliance industries, m&a, ada enterprises / adag
Ambani v/s Ambani: squabbling siblings again kick up a stormnews
Rex Mathew
06 February 2006

Barely eight months from the announcement of a formal break-up of the Reliance empire, the Ambani brothers have started a fresh round of fighting. Though many allegations are being raised against each other, the real bone of contention may lie elsewhere - hidden from the public eye.

Just when the minority shareholders of Reliance Industries were waiting for the listing of new entities belonging to the Anil Ambani group, re-branded as Reliance ADAG from the earlier ADAE, a fresh war of allegations and counter-allegations have broken out between the rival camps of the country's most famous squabbling siblings. The shares of the new companies are reportedly being quoted at attractive rates in the grey market and shareholders are bound to be disappointed about the delay in listing.

Though a settlement was announced by the middle of last year, splitting the group between the two brothers, somehow it always appeared to be a forced truce with neither side completely happy with the terms of the division. However, both sides gave the impression that they were moving away from the past with announcements of significant initiatives for their respective businesses.

Then, suddenly, they have made their acrimony public all over again. Allegations and counter-allegations are flying thick and fast. Both the main players remain in the background as the side acts take the stage, keeping the media on its toes.

For the love of gas
The latest round of bickering between the brothers started when JP Chalasani, Anil Ambani's nominee on the board of Reliance Natural Resources (RNRL), publicly alleged that the agreement executed by Reliance Industries Limited (RIL) with RNRL was not according to the terms of settlement between the two groups.

He further stated that the agreement would be 'suitably amended' once the control of RNRL was transferred to the Anil Ambani Group. However, he did not clarify how the agreement would be amended if RIL did not budge from its position.

RNRL is the vehicle through which natural gas supplies from RIL to the gas-based power projects of ADAG are to be routed. RIL had finalised the 'gas supply master agreement' with RNRL on January 12, 2005, under which RNRL or its associate entities like Reliance Energy were entitled to a total of 28-million cubic metres of natural gas per day at a price of $3.18 per British thermal unit or BTU.

That's a lot of gas - 28-million cubic metres is sufficient to generate nearly 8,000mw of power. RIL's earlier contract with NTPC was for only 12- million cubic metres. It is also reported that RIL has undertaken to supply an additional 40 per cent of production above 53-million cubic metres per day, if its total production exceeds that level, to RNRL. However, these additional supplies would come at prevailing market prices.

The promised supplies from RIL should take care of the gas requirements of most of the projects announced by ADAG so far, unless the capacity of the Dadri project is hiked further. The pricing is far below current market prices of closer to $5 per BTU. Then why is Anil Ambani objecting to the agreement?

Apparently, Anil wants to pin down Mukesh on the latter's earlier commitment to supply gas to Reliance Energy's projects and extract the maximum possible quantity of natural gas at the best possible price. No other supplier in the world would supply gas at the rates agreed to RNRL by RIL.

ADAG is yet to finalise the details of the mega-power project at Dadri. While initial statements from Reliance Energy indicated that the generation capacity would be around 3,000mw, the group is now reportedly considering a much bigger plant. The group's attempt to make the project more viable through tax concessions by housing it within an SEZ may not find favour with the government as most of the power would be sold to domestic consumers. Therefore, cheap fuel supply from RIL is critical to Anil's plans.

Mukesh knows this very well and would try to extract the maximum mileage for himself.

However, it would be difficult for RIL to provide more gas even if it wanted to. NTPC has already contracted with RIL for 12-million cubic metres and has even sued RIL to ensure supplies from early 2008. The total production capacity of RIL is expected to be below 50-million cubic metres per day in the initial years of commencing production in 2008. After supplying 28- million cubic metres to ADAG and meeting its own requirements, there won't be much gas left.

Transfer of control
RIL has also reportedly entered into agreements with the four de-merged entities on brand usage as well as a no-compete agreement for the next 10 years. The brand usage agreement covers usage of the Reliance brand and the company logo.

The basic argument of the Anil camp is that control of the four de-merged companies should have been transferred to them before the agreements with RIL were executed. At present all four companies have three directors each - two from the Mukesh Ambani camp and one each from the Anil Ambani camp. The younger brother's camp has also alleged that RIL pushed through the agreements, which are not as per the terms of settlement between the brothers, in a hurry.

RIL has countered that none of Anil's nominees on the boards of these companies attended the meetings convened to approve the agreements.

Transfer-and-list or list-and-transfer?
On February 5 - a Sunday - another lieutenant of Anil Ambani accused RIL of 'deliberate and criminal' attempt to delay the transfer of control and listing of the four de-merged entities on the stock exchanges. He also said the delay was a 'mockery of all fundamental principles of propriety, transparency, fairness and corporate governance'. Strong words indeed, even for bitter competitors fighting each other!

As it is the parent company, RIL is supposed to take care of the procedural formalities of the de-merger like issuing shares of the new companies to shareholders. It has already issued shares of all four companies including physical shares to those who have not opened demat accounts.

When de-merged entities are listed on the exchanges without an IPO, a draft information memorandum is required to be filed with the exchanges. RIL has filed the memorandum for all companies except Reliance Communication Ventures.

Sandeep Tandon, the RIL appointed chairman of all the 4 de-merged companies, countered the ADAG accusations by saying he had written earlier to the ADAG group for their in principle nod for listing. He alleged that ADAG has written to SEBI and the exchanges to stagger the listing of the four companies over a period.

He also said the Mukesh camp is willing to transfer control 'any day' and that all companies, except Reliance Communication Ventures, are ready for listing.

On Reliance Communication Ventures, Sandeep Tandon said the draft information memorandum could not be filed as ADAG has been withholding information. He alleged that Anil was planning to raise his stake in Reliance Infocomm besides merging Reliance Infocomm and Reliance Telecom, the two operating companies that operate CDMA and GSM services respectively, before listing the holding company.

ADAG countered saying the transfer of control should have happened in January as per the terms of settlement. They said RIL cannot provide information to exchanges about holding companies whose operating companies are managed by ADAG. It was also alleged that RIL provided incorrect information to the exchanges about three companies in the drafts already filed.

So RIL wants to list the companies and then transfer control while ADAG wants control now and then the listing. Both ways, the listings get delayed and minority retail shareholders would have to wait longer which is not fair to them. Still, both groups keep swearing by corporate governance and the interest of small shareholders.

What exactly is the issue?
There are enough reasons to suspect that the real reason behind the fresh bout of allegations is hidden from the public eye. Both brothers are smart at leveraging the media and public opinion to their advantage.

Both brothers, especially Anil Ambani, have used the media to gain an upper hand in the past. The way Anil raised serious allegations about corporate governance at RIL and revelations about Mukesh's alleged attempt to enrich himself through preferential allotment of Reliance Infocomm shares is a case in point. It is altogether another matter that Anil Ambani chose to forget all these issues once he got a settlement acceptable to him.

There is nothing to the allegations and counter-allegations being raised over the last couple of days, including the dispute over gas, which cannot be sorted out with some effort from both sides. So why are they now using very strong language in their dispute with each other, all over again?

The settlement between the brothers was worked out last year with the help of mediators. Given the extraordinarily complex holding structure of the group, it is quite possible that some minor details may have been missed out. Some of these then seemingly minor details may have possibly become major issues now.

What these issues are, only the two brothers and their close confidantes would know. However, if either of them believe in at least minimum corporate governance and protection of minority shareholder interests - values they profess in public - they should stop the public bickering once and for all.

And, they should start their innings as separate groups with a lot more transparency.

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Ambani v/s Ambani: squabbling siblings again kick up a storm