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Raghuvir Srinivasan

It is control rather than "ownership issues" that appears to be at the heart of the dispute between the Ambani brothers. The real bone of contention is who controls Reliance Industries.

IN ANCIENT lore is the story of King Vishwamitra reaching the hermitage of Sage Vasishtha on return from a campaign. The sage offered the tired King and his army a banquet thanks to Kamadhenu, the divine cow that gave all that was sought. The King wanted the cow but the Sage would not part, and there ensued a great battle over the cow.

In modern times a battle is unfolding and at the centre is a cash cow — Reliance Industries. It is control rather than "ownership issues" that appears to be at the heart of the dispute between the Ambani brothers.

Ownership is merely the means to the end of acquiring control over the group flagship, Reliance Industries. Given the enormous wealth of the family, its mere sharing should hardly be an issue; as Mr Y. P. Trivedi, a Reliance Industries Director, said, there is enough to share.

The real bone of contention is who controls Reliance Industries. Whether they are murmurs from the Anil Ambani camp that the complex equity holding structure of Reliance Industries with numerous investment companies has been tinkered with by Mr Mukesh Ambani after the death of their father, or Mr Mukesh Ambani's e-mail clearly setting out who the boss is, this is the issue.

Why is control over Reliance Industries so important for the two brothers? It is obviously not merely to preside over the affairs of the Rs 75,000-crore behemoth. What both Mukesh and Anil appear to be eyeing is its cash chest. Reliance Industries is a veritable cash machine that generates thousands of crore rupees year after year.

The company had free cash flows from operations of Rs 11,800 crore in 2003-04; it was Rs 6,600 crore the year before that and Rs 7,500 crore in 2001-02. The current year should see close to Rs 15,000 crore flowing in, given the highly positive trends in both petrochemicals and oil refining.

In fact, as Reliance completes the full value chain in oil and gas — from commencing commercial production of gas at the Krishna-Godavari basin to setting up the 1,500 retail outlets for petrol and diesel — its cash flows could increase significantly from current levels. The oil business is traditionally cash rich, add to this the strong prices of petrochemicals and Reliance could be generating cash in the region of Rs 25,000 crore every year in the next three years.

It is this cash that the two brothers are eyeing to stabilise and grow their respective businesses of telecom and energy — their own independent legacies which are also distinct from their father's. If Dhirubhai Ambani left behind Reliance Industries with its impregnable position in the petrochemicals and petroleum space, his two sons want to create similar assets and businesses in their chosen areas.

Reliance Industries is a well-developed business now and all that it needs is a competent hand at the helm to steer its affairs smoothly. Beyond raising capacities, ensuring the smooth commencement of gas production and the rollout of retail outlets there is not much of a challenge for the two brothers in the company. Therefore, given their overarching ambition and drive, it is obviously cramped at Reliance Industries. But how do they fund the massive outlays in their areas of telecom and energy? If Mr Mukesh Ambani's telecom venture has already consumed Rs 12,000 crore as investment from Reliance Industries, Mr Anil Ambani needs at least half that for just one project of his Reliance Energy — the power plant planned at Uttar Pradesh at an outlay of Rs 11,000 crore.

As per the Central Electricity Regulatory Commission norms, all generation projects are to be funded in a 70:30 debt-equity ratio which means Reliance Energy will need close to Rs 4,000 crore as equity contribution for just the UP project. Then there are other projects such as a coal-fired generation project, also in UP, and entry into power distribution in five cities of that State.

The point is that as it strives to execute its ambitious plans to turn into a power-house, Reliance Energy (and Mr Anil Ambani) would need increasing amounts of cash to fund its projects.

This is where Reliance Industries' massive cash generation would come in handy; the company is a majority equity holder in Reliance Energy and is classified as the promoter.

Further, the Reliance tag would be crucial to raising funds from the market — debt or equity — at favourable rates and valuations. Therefore, control over Reliance Industries is critical to Mr Anil Ambani's ambitious plans.

For Mr Mukesh Ambani, the story is slightly different in that he has already tapped the Reliance Industries cash chest to bankroll his telecom venture. He may, at worst, need support for another year or two after which the telecom business should be on its feet.

But in this period he needs complete control over Reliance Industries to ensure the smooth flow of investments to the telecom company. Besides, he would also need the support of the flagship for his other ventures such as Reliance Life Sciences apart from other new projects that may come up in future.

As the incumbent Chairman and Managing Director, Mr Mukesh Ambani is also staking his claim to preside over the affairs of Reliance Industries as successor to Dhirubhai Ambani.

But the idea also appears to be to buy out Mr Anil Ambani now to get complete control over Reliance Industries.

In this battle over a cash cow, the elder sibling appears to be in a commanding position right now given his incumbent position in the company that gives him control over the investment companies that hold close to 30 per cent equity in Reliance Industries.

An equitable settlement between the two brothers in this scenario appears to be an optimistic expectation. The question really is how much will the younger Ambani be called upon to sacrifice now to ensure a smooth partition.

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