Family truce paves path for Mukesh to spread footprint

After five years of a bitter feud that split India’s richest family, held government energy policy hostage and discouraged foreign investment in oil and gas, Mukesh and Anil unexpectedly called a truce on Sunday by ending a non-competition agreement that was a source of acrimony between them.

While the two groups spoke hopefully of harmony and cooperation, they are unlikely to invest together anytime soon given the recent bad blood, said a person familiar with the matter.

Invest freely
Still, Mukesh’s Reliance Industries, which has been seeking global acquisitions for growth, can now invest freely in a country where it is well-connected, its brand is ubiquitous, and where an economy poised to grow at 9 per cent offers better long-term prospects than can be found overseas.

Besides power and financial services, Mukesh, the world’s fourth-richest man is eyeing infrastructure such as roads, the source said. A return to telecoms may be a more distant prospect. Anil is believed by some analysts to have agreed to cancel the pact that stopped them from competing in exchange for better terms for gas supplied by Mukesh.
Also, Mukesh can no longer block Anil from tying up with rivals, the way he did in 2008 when he thwarted a bid by Anil’s Reliance Communications to merge with South Africa’s MTN by asserting a right of first refusal.

Having just splashed out $1.8 billion on third-generation mobile spectrum in India and facing the need to spend billions more on network construction, Anil may find that freedom handy if he chooses to bring in outside investors. If Anil had prevailed in court, it would have cost Reliance Industries $700 million a year in lost cash flow by selling him gas at the lower price agreed earlier by the two brothers, according to Ambit Capital.
Under their new agreement, only area where Reliance Industries cannot compete with Anil is in gas fired power generation. Mukesh is free to invest in high-growth, newer economy industries that will benefit from rapid expansion of Asia’s third-largest economy, as well as coal-based power. Reliance Industries is forecast by Goldman Sachs to generate free cash flow of $18 billion between this year and the financial year that ends in March 2014, giving it plenty of firepower for investment.

Mukesh has a soft spot for telecoms — he founded the firm that became Reliance Communications and was ceded to Anil in the split — although he is unlikely to dive into a cellular market locked in 15-player fight to the death. With his cash, he could eventually swoop in for a capital-starved operator.

Financial services are also on Mukesh’s radar screen. Anil’s Reliance Capital is engaged in insurance and fund management. Both sectors are attractive to Reliance Industries, according to the source, and may see consolidation as undercapitalised players look to exit.
Reuters