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Raghuvir Srinivasan

Chennai , June 18

THE best part of the Reliance settlement is that it happened; the worst is that there are no details available other than the broad contours.

So, we now know that Mr Mukesh Ambani will get complete control over flagship Reliance Industries and Indian Petrochemicals Corporation (IPCL), while Mr Anil Ambani will gain control over Reliance Infocomm, Reliance Energy and Reliance Capital.

But is that all what the settlement is about?

Do we know how the transfer of control will take place? No. Do we know if is there any cash outflow involved either from Reliance Industries or from one or the other parties to the deal? No.

In fact, the most striking aspect of the settlement announcement made today is the absence of any details on the modus operandi.

Of course, media reports, without any attribution whatsoever, have it that the equity stake of Reliance Industries in Reliance Energy, Reliance Infocomm and Reliance Capital would be transferred to a special purpose vehicle that would be listed on the stock market. The shareholding pattern in this company would mirror that in the flagship Reliance Industries to protect the interest of public shareholders.

The official word from Reliance Industries, though, is that the task of reorganisation of the business has been entrusted to a board committee consisting of independent directors who will consider all legal and statutory requirements before giving their recommendation.

Now, is this good corporate governance? Would it not have been better to wait for all the details to be tied up, including the significant one on the manner of restructuring the businesses, before going public with the announcement of the settlement?

Remember, though the Ambani family promoted the companies, there is a lot of public money involved and the Reliance Industries stock is a market mover. The market is now left to speculate on the finer details till the board appointed committee gives its report.

Interesting issues

Meanwhile, there are some interesting issues that will be worth watching in the future.

First is the fate of the gas supplies to Reliance Energy from the Krishna-Godavari basin reserves owned by Reliance Industries. It is unlikely that Reliance Industries will renege on the commitment it made earlier but will the terms of the deal be the same as before? And again, will Reliance Industries strive to meet its commitment to begin supplies from 2008-09? The prospects of Reliance Energy's Uttar Pradesh power project hinge critically on this.

Second, what will happen to all those corporate governance issues concerning Reliance Infocomm that were raised by Mr Anil Ambani over the last seven months? Surely, they still remain relevant? Now, with Reliance Infocomm going to him, will those issues be given a quiet burial?

It will be interesting to watch the moves of the concerned government arms - be it the Department of Company Affairs, the SEBI or the Central Bureau of Investigation, which is investigating call diversions made by Reliance Infocomm, on the various issues raised.

Good for the group

The settlement is good news for Reliance Industries and Reliance Energy from a pure business perspective. The transfer of the infocom business will enable Reliance Industries to focus more sharply on its main businesses of oil exploration, refining and petrochemicals.

The vesting of total control of Reliance Energy in Mr Anil Ambani's hands is good for the company as it was dogged by the shadow of its parent Reliance Industries in the last few months. The company will now be free to decide for itself without having to take recourse to the parent - a fact borne out by today's announcement that its board will meet on Sunday to decide on fund raising plans.

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