Brotherly Love Means $3.5 Billion Value Boost at Reliance

Anil Ambani’s first cooperation with his older brother Mukesh after eight years meant more than family peace. It has also added $3.5 billion to the market value of the younger brother’s listed companies in five weeks.

The combined market capitalization of Anil’s six companies rose to $12.1 billion as of yesterday, up from $8.6 billion on April 1, a day before India’s richest brothers announced a deal and said more partnerships would follow.

Mukesh Ambani agreed to pay for using Reliance Communications Ltd.’s fiber-optic network, helping Anil’s flagship company generate additional income after its profit fell in 13 of the last 14 reported quarters. The pact was the first after they scrapped a non-compete accord three years ago, following the 2005 feud that split the group.

“The market is hoping that big brother can support Reliance Communications by providing some meaningful business to younger brother,” said Walter Rossini, who manages about $200 million in Indian assets including Reliance Communications at Aletti Gestielle SGR SpA in Milan. “The first deal was a symbolic one. Now let’s see if the commitment to support the business continues.”

Shares Surge

Shares of Anil’s six companies have advanced since April 1. Mumbai-based Reliance Communications has almost doubled, Reliance Power Ltd. has surged 22 percent, Reliance Capital Ltd. climbed 18 percent, Reliance Infrastructure Ltd. has risen 17 percent, Reliance Mediaworks Ltd. has gained 13 percent and Reliance Broadcast Network Ltd. has advanced 16 percent.

In contrast, Mukesh’s Reliance Industries has risen 6.5 percent, and the benchmark S&P BSE Sensex is up 6 percent. Reliance Communications fell 0.7 percent to close at 111.95 rupees in Mumbai, while Reliance Industries rose 0.2 percent to

829.65 rupees.

Reliance Industries spokesman Tushar Pania and Reliance Communications spokesman Rajeev Narayan both declined to comment on the share price moves and on any new deals between the two companies.

Mukesh’s net worth yesterday rose 1.9 percent to $23.8 billion, ranking him the 26th richest in the world, according to Bloomberg Billionaire’s Index. Anil’s net worth gained 2.3 percent to $8.3 billion.

Reliance Jio Infocomm Ltd., a unit of Reliance Industries, will pay 12 billion rupees ($222 million) to share the fiber optic network of Reliance Communications to start a fourth-generation broadband service, the two companies said on April 2. Reliance Communications will have “reciprocal access to optic-fiber infrastructure” to be built by Reliance Jio and the two will share telecommunications towers in the future.

Business Split

The 2005 battle over control of Reliance left Mukesh, 56, with the petrochemicals, oil and natural gas businesses. He ceded ownership of telecommunications, a business started by him, to Anil, 53, 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.

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 will probably post its third consecutive decline in quarterly profit when it reports on May 10 results for the three months ended March, according to analyst estimates. Net income may fall to 1.27 billion rupees in the fourth quarter from 3.32 billion rupees a year earlier, according to the median of 14 estimates compiled by Bloomberg.

Debt Burden

“The way the stock has run up has been excessive because nothing has really changed,” said Harit Shah, an analyst with Nirmal Bang Equities Ltd. in Mumbai. “Maybe it would be justifiable if they were to successfully list a unit or make a deal that would resolve their balance-sheet problems, the things they’ve been promising for years.”

Reliance Communications’ total debt rose 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. Third-quarter profit fell 44 percent after interest costs surged 60 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 lower the cost of running its networks.

Tariffs Raised

Reliance Communications this week raised tariffs by 20 percent and cut promotional and concessional offers by as much as 65 percent. The tariff changes come as the company added subscribers in February after two months of declines.

With some of the smaller operators shutting down or scaling down operations, competitive pressure is easing, Gurdeep Singh, chief executive officer, wireless at Reliance Communications, said on May 6. It is will also help “pricing power move back to serious, long-term and pan-Indian scale operators and positively impact profitability,” Singh said.

Other Alliances

Reliance Communications last month also forged a roaming agreement with competitor Aircel Ltd. to expand its network footprint without any upfront costs and said this was the first of more similar pacts it plans with other operators.

Mukesh’s Reliance Jio is also forming alliances with others including billionaire Sunil Mittal’s Bharti Airtel Ltd. Reliance Jio will use dedicated capacity on Bharti’s i2i submarine cable to extend its network to customers in the Asia Pacific region, they said on April 23.

The deal with Mukesh could help Anil attract investments, said Raj Kothari, a London-based fixed-income trader at Sun Global Investment Ltd., which holds three of Reliance Industries’ bonds.

“Mukesh’s promise has been a kind of bailout for Anil’s business,” Kothari said. “With Reliance Industries coming in, a world of options are opening up for Reliance Communications.”

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