Commodities

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

India's richest tycoon also seems to be its luckiest.

While many a formerly gung-ho Indian businessman is being crushed by debt, Mukesh Ambani's Reliance Industries is getting one break after another. First came the fall in global crude prices, which has already given the conglomerate's refining business $10-plus-a-barrel margins for four straight quarters, its biggest windfall in almost seven years.

Great Expectations
Consensus estimates of Reliance Industries' earnings have surged
Source: Bloomberg

Next came news of the impending entry of Ambani's fourth-generation wireless service.  As India's overcrowded mobile-phone market got jittery about the $15-billion punt, analysts began to boost their target for the stock, which is up almost 25 percent over the past year, more than any other on the benchmark Nifty index.

Glad tidings continued this week: The Indian government on Monday adopted a new pricing mechanism for deepwater and other difficult-to-develop gas fields, by linking the gas price to alternatives like fuel oil, coal and naphtha. Assuming a long-term oil price of about $70 a barrel, Bernstein analysts Neil Beveridge and Tracy Pun reckon the formula could hand Reliance an upstream margin of more than $5 per barrel of oil equivalent (boe) for the about 1 billion boe of recoverable gas reserves it has in discoveries adjacent to its existing fields. To win the prize, however, Ambani must first scrap arbitration proceedings against the government for denying it a higher price on the gas it already produces.

Bernstein expects an agreement, which would be great news for shareholders. Of course, the actual gains to Reliance and its partner BP will depend on whether global oil prices rise enough to make investment in new fields viable but not so profitable that the Indian government starts looking for creative ways to renege on the price formula.

Short term, just the hope of an end to litigation, followed by a sustainable recovery in oil and gas production, could lift sentiment, considering this once-promising sector contributed barely 2 percent to Reliance's revenue last quarter versus refining, which churned out almost $1 billion in operating income.  

The better things get for Ambani, the bigger the headache for his competitors.

Bharti Airtel, controlled by billionaire Sunil Mittal, recently went on a $663 million airwaves shopping spree even as it sells mobile towers in Tanzania to cut debt. Reliance, too, has lots of debt -- nearly $24 billion. But since its last earnings announcement in January, its 2025 dollar bonds have returned 5 percent.

Different Strokes
Dollar bonds of Vedanta have collapsed as notes of Reliance hold value
Source: Bloomberg
*Reliance Industries 2025 bonds; Vedanta Resources 2019 notes.

Several other big-name businesses in India aren't as fortunate. The 2019 U.S. currency notes of Vedanta Resources are trading slightly above 60 cents on the dollar as Chairman Anil Agarwal struggles to conclude a takeover of oil explorer Cairn India, which is also hoping to hear from New Delhi about the fate of its existing production contract beyond 2020. The Indian unit's former British parent is embroiled in a messy tax dispute with the Indian government. So is Vodafone. An investigation into the unpaid bank loans of liquor baron Vijay Mallya's failed airline venture could spiral into a witch hunt which, while seeking to uproot crony capitalism, destroys risk-taking.

Ambani's good fortune should at least give others hope. If India displays greater resolve in following through on its promise of creating a more favorable business environment, more companies will be thanking their lucky stars. Their investors, too, will have something to celebrate.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Singapore at amukherjee@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net