Ambani Brothers Sign First Deal Since Splitting Empire

India’s billionaire brothers Mukesh and Anil Ambani announced a 12 billion-rupee ($221 million) pact to share a fiber-optic network, their first deal since splitting the Reliance business empire founded by their father.

Reliance Jio Infocomm Ltd., a unit of Mukesh Ambani’s Mumbai-based Reliance Industries Ltd., will use the countrywide network of younger brother Anil’s Reliance Communications Ltd. to start a fourth-generation broadband service, according to statements by the companies yesterday. Reliance Communications will have “reciprocal access to optic fiber infrastructure” built by Reliance Jio and the two will share telecommunications towers in the future.

The pact, the first since the brothers fought a bitter, public feud that culminated in the group being split in 2005, helps Reliance Communications generate additional income from its network at a time when profit has fallen in 13 of the last 14 quarters. Mukesh gains access to a network he helped build before the split that will kickstart a telecommunications business for which he spent 48 billion rupees buying nationwide broadband spectrum in 2010.

“The kind of infrastructure Reliance Industries would need to have put up would’ve been exorbitantly high,” said Mumbai-based Kamlesh Kotak, head of research at Asian Market Securities Pvt. “Now, they’re cost competitive.”

Lost Wealth

Anil, 53, has lost 26 percent of his wealth this year, according to the Bloomberg Billionaires Index. He is worth $6.2 billion, while his older brother, India’s richest man, is worth $22.9 billion.

Shares of Reliance Communications, India’s third-largest mobile-phone operator, rose 1.6 percent to 64.45 rupees at the close in Mumbai. The stock gained 11 percent yesterday, the biggest increase since July 2011. Reliance Industries fell 2.2 percent to 776.55 rupees, compared with a 1.3 percent drop in the benchmark S&P BSE Sensex.

The 2005 battle over control of Reliance left Mukesh, 55, with the petrochemicals, oil and natural gas businesses. He ceded ownership of telecommunications, a business started by him, to Anil, who also took over power, financial services and entertainment. Both retained the rights to the Reliance name. The company was founded by their father Dhirubhai Ambani to trade spices and yarn in 1959. He died intestate in 2002.

Truce Signs

The first indication of a rapprochement came in 2010 when the brothers scrapped an agreement that prevented them from competing in each others’ businesses. A year later they danced and prayed in their ancestral village on the eve of their father’s 80th birth anniversary along with their families.

Reliance Communications’ total debt increased more than threefold to 385.6 billion rupees on Dec. 31 from 119.1 billion rupees in June 2006, according to data compiled by Bloomberg. In January, the Mumbai-based company posted a 44 percent drop in third-quarter net income to 1.05 billion rupees after finance costs surged 59 percent.

The mobile-phone operator’s attempts to reduce debt by selling its telecommunications tower unit Reliance Infratel Ltd. have proven unsuccessful. A planned $2 billion share sale of its submarine cable assets in Singapore, hasn’t taken place after it was announced last year. The company signed two $1 billion deals with Alcatel-Lucent SA and Ericsson AB this year to reduce the cost of running its networks.

Reliance Industries’ net income fell in four of the last five quarters on declining natural gas output from India’s biggest field, the KG-D6 block in the Bay of Bengal.

Yesterday’s agreement gives Mukesh the right to use Anil’s fiber-optic network for the next 25 years, said a Reliance Industries official, who declined to be identified as the information is private. Reliance Industries, which runs the world’s largest refining complex, also plans to build a network on its own and strike similar ventures with other partners, the official said.

“This is probably the beginning of more cooperation between the two, at least in the telecom sector,” said Kotak.

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