Ambani and Adani won't step on each other's toes

By Andy Mukherjee

A beleaguered Indian billionaire is redrawing the contours of his empire in a way that minimizes friction with his bigger rival. That may be a sensible strategy.

Gautam Adani can’t afford a costly distraction. While his core infrastructure business is booming, there’s little reprieve from the governance issues that have dogged the Adani Group since New York-based Hindenburg Research’s allegations of stock-price manipulation and undisclosed related-party transactions earlier this year. Despite its strenuous denial of the short-seller’s report, the conglomerate’s market value has sagged more than $100 billion since January.

A fresh blow arrived Saturday as Deloitte Haskins & Sells LLP, the auditor of Adani’s ports unit, abruptly resigned the same week June quarter results showed record revenue and operating profit. In its full-year audit of May 30, Deloitte had said that the legal opinion the group provided on the veracity of Hindenburg’s allegations was inadequate and that an independent external examination was warranted. The accounting firm’s August 8 quarterly review reiterated those concerns.

The auditor’s exit is a timely reminder that while growth will suppress governance concerns, it won’t make them go away. India’s market watchdog on Monday asked the Supreme Court in New Delhi for another 15 days to wind up its inquiry into the group. The Securities and Exchange Board of India is investigating possible violation of rules concerning minimum public shareholding, related-party transactions and manipulation of stock prices. To shore up investor confidence, the Adani family has raised billions of dollars. The group has also doubled down on expansion by acquiring a cement company and announcing a $3.7 billion capital-expenditure plan for the current fiscal year.

But most importantly perhaps, Adani has given a signal to Ambani that he’s no longer keen on direct confrontation.

This time last year, it looked like the two tycoons were set to compete in everything from petrochemicals and renewable energy to telecom, media, consumer staples and finance. That threat is receding. Adani’s consumer finance franchise, which he was preparing last year for a public float, is being sold to Bain Capital. This is an area where Ambani has recently made a splashy foray by spinning off Jio Financial Services Ltd. from his flagship Reliance Industries Ltd. and announcing an asset-management tie-up with BlackRock Inc.

By stepping back from consumer finance, Adani might also be dialing down his super-app ambition, which was threatening to set up another potential conflict with Ambani’s digital unit, Jio Platforms Ltd.

Separately, Bloomberg News has reported that Adani is exploring a sale of his $2.6. billion shareholding in Adani Wilmar Ltd., which owns a top-selling cooking-oil brand. Any such move, which the group has refused to comment on, may serve a twin purpose. It would raise funds that could be put to better use in core infrastructure — for instance, the fast-growing power transmission unit needs fresh equity. Besides, by exiting the consumer-oriented business, Adani would demonstrate a willingness to leave the field to his competitor. Ambani, who is also India’s largest retailer, is looking to expand aggressively into branded consumer goods.

Finally, the strongest evidence that two of Asia’s richest men are headed for at least a détente came from the most recent post-earnings conference call of Adani Enterprises Ltd., the group’s beachhead for getting into new areas. The chief financial officer gave a breakdown of this year’s capital expenditure plan: $1.7 billion into roads; $1.1 billion for airports; $300 million for green hydrogen; $200 million for data centers; $200 million to complete a new copper smelter, and just under $100 million for water.

Missing from this list was the coal-to-plastics venture. At the peak of the post-Hindenburg meltdown in Adani’s stock prices, the group had denied media speculation that it had put the factory, seen as a direct challenge to the Ambani group’s legacy petrochemicals business, on hold. The group had said in March that it was hopeful of financial closure in the next six months, after which full-fledged procurement and construction would commence. Since then, the $4 billion project doesn’t seem to have made much progress, though the group maintains that it’s still on. “We are just working through on the various reports preparation, site work etc.,” CFO Jugeshinder Singh said on the Aug. 3 conference call. He promised an update after this quarter’s results.

As Ambani, 66, and Adani, 61, move into their non-overlapping orbits, clean energy may still be one area where both would have significant interests. But here, too, Adani’s focus may be on using his planned 45 gigawatts of renewables power capacity by the end of the decade to produce low-cost green hydrogen for use in ammonia, urea and methanol — and in steel plants. The company, which will soon start work on electrolyzer manufacturing to split water into hydrogen and oxygen, is prepared to go solo on the overall $50 billion green H2 investment after France’s TotalEnergies SE put its participation on hold following the Hindenburg allegations.

Ambani’s trajectory may be somewhat different. Reliance’s oil-to-chemicals unit is one of the world’s biggest consumers of dirty or gray hydrogen, extracted from petcoke, a heavy refinery residue. Ambani’s biggest challenge will be to switch to a non-polluting feedstock without compromising on profitability. He will also look to decarbonize some of India’s auto-fuel demand. While that ties in with Reliance’s fuel-retailing joint venture with BP Plc, industry analysts say that it will take years for India’s long-haul trucks and inter-city buses to run on green H2.

The risk of a head-on collision has lessened considerably from last year, when the younger entrepreneur had pulled ahead of his older rival on global wealth rankings. Adani is still India’s second-richest corporate czar, but his post-Hindenburg net worth of $62 billion is a third behind Ambani’s. That’s just as well, at least for their investors. Given the ample leg room for Adani in infrastructure and for Ambani in India’s consumer economy, it may not be a bad thing for the billionaires to avoid stepping on each other’s toes.