December 10, 2019
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Heads We Lose, Tails We Lose

Chances are Mukesh keeps control of RIL while Anil gets Infocomm — not what either of them wanted Updates

Heads We Lose, Tails We Lose
Heads We Lose, Tails We Lose
Divided They Fall
  • Mukesh has built Infocomm from scratch; he will be unhappy losing control over it.

  • Without RIL's backing, Anil will find it

    difficult to finance Infocomm's future.

  • Anil will have to deal with sensitive legal issues relating to Infocomm.

  • The split may lead to dilution of the Ambani clout, and hurt both brothers.

The employees at New Mumbai's Dhirubhai Ambani Knowledge Centre (DAKC)— the headquarters of Reliance Infocomm—are worried. In the past few months, Mukesh Ambani, who fathered the venture, has hardly visited the campus. His close aides, Anand Jain and Manoj Modi, haven't been seen there for weeks. In hushed whispers, Infocomm executives talk about calls they have received, or the ones they have made, in a bid to figure out who's finally going to inherit the telecom business as a part of settlement between the two feuding Ambani brothers, Mukesh and Anil.

After three months of bitter public battles, and a month of silence as top investment bankers set about valuing the Ambani empire, negotiations between the two camps are now at the final, most delicate and decisive stage. And what is definite is that the two brothers will not be working together, they would have their own slices of the empire their father and they built.

The Anil camp, which is confident of getting Infocomm, talks about managers who are willing to switch sides. Anil has also contacted old industry hands to figure out if they'll help him run—and restructure—the company. But Mukesh's men say they have told senior managers in Infocomm that they needn't be scared about any cataclysmic changes. "These are marketing people, and can easily be absorbed in the parent company, Reliance Industries Ltd (RIL), which we'll inherit," says one of them. RIL has ambitious plans to set up thousands of petrol pumps across the country, and the expertise of the Infocomm loyalists will come in handy there.

There are other hints too that it may be Anil who'll now be a regular visitor at DAKC. A few days ago, the younger Ambani met Pradip Baijal, chairman, trai, the telecom regulator. "We discussed general issues. In particular, he wanted to understand how a telecom business can be viable despite the fact that trai has forced down prices for consumers. I told him that volumes are likely to go up dramatically, as they have in the past three years," says Baijal. He cautiously adds that Anil still wasn't sure whether he would get Infocomm or not. But a number of people close to Anil have started brushing up their telecom knowledge.

So, that may be it. The ongoing negotiations to finalise the contours of an imminent split between the two brothers may end up leaving Mukesh in control of RIL and IPCL, and Anil of Infocomm and Reliance Energy. There's some confusion about Reliance Capital but that's largely irrelevant if one considers its size in terms of both revenues or profits.

Yet, the feeling grows that neither side will be happy with the deal. Publicly, both will proclaim victory; Anil will contend he's got more than what he bargained for, and Mukesh will advertise that he ejected his younger brother from cash cow RIL, which accounts for the bulk of group's cashflows. But, in reality, it'll be a typical lose-lose option that is usually the end result of most family disputes. As one Reliance observer admits, "Mukesh will have to give up a business (telecom) that's dear to his heart, and Anil will acquire a firm (Infocomm) whose strategy he has consistently criticised over the past four months."

When Reliance first set its eyes on telecom in the mid-1990s by bidding for cellular licences, it failed miserably. It only got a handful of them in the not-so-hot circles and, ironically, it was Anil who formulated the strategy.By the late 1990s, Mukesh took charge and aggressively pursued a new strategy. He has managed to grab over 10 million subscribers in less than two years. In the process, Mukesh has muscled rivals, cajoled policymakers to rewrite telecom laws and transformed the market. "Infocomm is what it's today only because of Mukesh," says a senior manager in a cellular firm. Mukesh will never happily give up a vast business that he has built from scratch, with no help from Anil.

Indeed, it'll be doubly ironic if Anil gets Infocomm as part of the division of spoils. He's consistently attacked Infocomm's strategy as well as the manner in which RIL was forced to nurture Mukesh's baby by doling out thousands of crores of rupees at improbably attractive rates. An Anil advisor told Outlook several weeks ago: "Everything about Infocomm is wrong—its financing pattern, its strategy and business model. Mukesh thought he could make the venture viable by forcing subscribers to pay money upfront in a bid to recoup a sizeable portion of Infocomm's overall investments (around Rs 16,000 crore). In the interim, he bled RIL, whose total exposure to Infocomm was an incredible Rs 18,000 crore, including the handsets it purchased and the bank guarantees it gave for the telecom project." When the projected upfront payments didn't materialise, Infocomm was in trouble.

If Anil meant what he had said about Infocomm in the last few months, he will initiate a strategic shift, and change the existing model. That will imply a change in mindset, which is likely to create confusion among employees and users. But what is more crucial is the incestuous links between Infocomm and RIL. Will Mukesh allow those to continue after giving up Infocomm? Will Anil, who has maintained that RIL was given a raw deal vis-a-vis Infocomm, undo the status quo? If Anil does that, will he not put further financial pressure on Infocomm, which plans to invest another Rs 9,000 crore this year?

There could be other problems too looming for Anil. He's opened up a Pandora's box by exposing the nexus between Infocomm and politicians and, according to finance minister P. Chidambaram, sebi is probing the charges. Infocomm is battling the government over allegations regarding re-routing of international calls as local ones. Explains a Reliance-watcher: "If the brothers had not been fighting, the cases would have been hushed up. Now, everyone finds it easy to take on the might of Reliance." If that's true, won't the Ambanis' clout in the corridors of power get further diluted after the split between the brothers?

Anil's supporters say there's a simple solution to the re-routing case. "We'll do what Dhirubhai did in such circumstances. He would pay up the penalties that the government demanded—and move on," says one. Instead, Mukesh and his men decided to engage in a head-on collision with the telecom ministry. "You just can't win against the government, especially if what you have done falls in grey area. It's better to backtrack in such situations," adds the same supporter.

Then there are Anil's energy dreams. From the beginning of his public fight since November 2004, he has been concerned about RIL's lack of interest in his pet project—the proposed Rs 10,000-crore power plant in Uttar Pradesh. Initially, Mukesh wasn't inclined to take cash out of RIL's coffers to finance it; later, as Anil believes, the elder brother wasn't forthcoming in supplying gas from Krishna-Godavari fields for the project. Now, if RIL goes to Mukesh solely, the elder brother will gain control over the fields. And Anil will still be at his elder brother's mercy for fuel supplies.

Energy experts contend that RIL will need to invest an additional Rs 10,000-15,000 crore to commercially exploit the Krishna-Godavari reserves.It was for this reason, an insider admits, that RIL had to delay its commitment to supply gas for Anil's venture a few months ago. "How can we give any supply deadline unless we're sure about it? There are so many permissions to get, so many issues to be tackled with government departments. Only then can we go ahead commercially," says another insider.

So, the sword of Damocles will keep hanging over Anil's head—both in case of Infocomm and his dream power venture. For Mukesh, it'll be a loss of face, given that Infocomm has always been his baby, and his alone. Indeed, until a few weeks ago, his aides were categorical that he won't give up either RIL or Infocomm and Anil can take away the rest of the group. That seems unlikely now. As both brothers take a few more steps towards a settlement, it's clear that neither of them will be a winner.

Alam Srinivas with Saumya Roy
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