Mukesh, Anil break MoU shackles
This time the patch-up between the warring Ambani brothers Mukesh and Anil is for real, if only partial, even though the contentious issue of gas allocation and price is yet to be discussed.
The agreement which was approved by the board of directors of Reliance Industries Ltd (RIL) and the Reliance ADA Group of companies, has cancelled the existing non-compete arrangements entered into between the two groups by the memorandum of understanding signed between the two brothers in January 2006. This is primarily in the area of gas-based power plants.
It will be a relief for Mr Anil Ambani, who was thwarted in his bid for Africa’s biggest telecom company MTN at the last minute by Mr Mukesh Ambani demanding that he had the first right to the shares that Reliance Communications was selling. The two brothers also competed and scuttled each others bids for a huge infrastructure project in Mumbai.
However, the agreement looks like a win-win situation for Mr Mukesh Ambani. The agreement, according to the official statement, from both the groups enhances operational and financial flexibility and greater ability to participate in high growth sectors such as oil and gas, petrochemicals, telecommunciatons, power and financials services.
The agreement is a positive step, said Mr Ambareesh Baliga of Karvy Stock Broking, but the non-compete agreement won’t make too much of a difference.
At the most it will create a positive sentiment in the market. It would have a financial impact only if the gas pricing issue is sorted out and there is little leeway for this. The government has already decided the price of gas and it is unlikely that Mukesh will sell gas below the $4.34 per unit.
Stock market consultant, Mr S.P. Tulsian, said Reliance Industries has huge liquidity with which it can undertake various projects, whereas Mr Anil Ambani is confined to gas-based power plants. The ADA group does not have a cash generating cow as Reliance Industries has. It does not have the money to enter oil exploration or any other sector.
Reliance Industries generates $5-6 billion in cash annually and it can take up projects worth $20 billion by leveraging. It is also sitting on $8-9 billion in treasury stocks and has $4-5 billion in hard cash.
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