Tuesday, December 8, 2015



A two-horse race

Reliance has the distinction of being India’s largest private company. But it is even more unique for something else – that it is in effect owned by a single family. Exclusive and lasting possession by families – once called managing agents, and now promoters – is a common feature of Indian companies. But they long ago grew far beyond the personal fortunes of their controllers, who perfected the art of borrowing and placing equity in innocuous hands to keep control. None of these artifices was necessary in Reliance, although some were employed; the shareholding of the Ambani family itself has been close to a half – enough to ensure control.
This controlling interest that Dhirubhai so masterfully built up had inherent in it the conflict amongst his sons. Perhaps he was too focused on making Reliance the dominant company of India to think of its division after his death; maybe he thought that his sons would follow the traditional Gujarati custom wherein the oldest son inherits the mantle of the father and in turn is duty bound to be generous to his siblings. They followed that tradition for three years; but finally the differences in personality, ambition and outlook proved too strong. At that point Mukesh acted like a traditional elder brother and cut Anil to size; but Anil refused to fit the size, and erupted in a series of exquisitely calculated, highly damaging public statements. Mukesh did not let them disturb him. But they led to a worrying fall in the market capitalization of Reliance, and were bound to limit its ability to raise outside capital. If for no other reason, Mukesh was induced or compelled, as the case may be, to seek a compromise.
The settlement basically leaves the hydrocarbons-based business of Reliance in Mukesh’s hands, and envisages the transfer of virtually everything else – electricity, telecommunications and finance – to Anil. The value of the latter businesses still fell short of what stayed with Reliance; so there are reports of Anil getting Rs 40-50 billion in cash.

The sums involved are enormous: both brothers will get wealth they could not spend in a few generations. But either could gamble or lose it. In business, nothing lasts forever; only risk is ever present, and folly lurks behind every bush. Mukesh is better placed, as he inherits an established business with a steady cash flow. Anil inherits all the problems. His power plant in Dadri will be dependent on Mukesh’s empire for gas, or he will have to make some other arrangement, such as getting gas through Pakistan. His telecommunications business has a huge customer base, but poor cash flow. This is why he insisted on a cash infusion; but there is no telling how long and how much telecommunications will bleed. But while he gets all the challenges, Anil also has the entrepreneurial flair to confront them. He is the man to watch.