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Friday, January 25, 2008

Mukesh Ambani & Anil Ambani - Sibling Excess in Reliance Empire

The famed and continuing rivalry of the Ambani brothers has hurt neither. On the contrary, their war has generated profits for them and the markets.

Battlelines Mukesh wants to be India's answer to Chevron while Anil aims to be the telecom czar Photo: Shailendra Pandey

TALK INDIA today and everyone's talking astronomical growth. There are the hard numbers, the leaping GDP international conference circuits are so proud of. But there's also an exciting potency: a kind of frisson about what lies ahead, about where this growth story can go. And there are the exciting spin-offs. A real sense of movement and selfconfidence in the urban centres. A real sense of belonging in the world community. A real say in international conversations about nuclear power, climate change, IT, off-shore industries, and telecom. A real sense of being the new investment mecca for the world. India's growth story may have spawned a hundred new dissatisfactions and inequities in rural India, but it has changed the way urban Indians understand opportunity. Changed the way Indians see themselves in the global space.

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In all this talk of growth, in this landscape of complicated change, the story of two men dominated this year. Mukesh and Anil Ambani. The fact that they are estranged brothers makes this more unique and enigmatic. They often grace business weeklies. Preside over powerful conferences. Feature on international covers. Yet, in a curious way, they are almost faceless. Less men than numbers; less men than chemical catalysts. A hundred whispers swirl around them — talk of the parallel governments they run, talk of the backroom deals they cut, the enmities they fix — but no one dares speak of them on record. Those who do, hedge even their praise in the blandest terms. They are the magic ions multiplying the fortunes of others. No one's too interested in their personal story. The story of their numbers is enough.

Barely two years ago, in 2005, the talk on the brothers was completely different. Their acrimonious battle for their father's giant empire led to a bitter and highly public split. The matriarch Kokilaben had to step in. Still, it was mid-2006 before the behemoth Reliance Industries was cut up, the debris tidied, and the partition lines made functionally clear. At the time, industry watchers predicted both, or at least one, of the brothers would drown, probably the younger, given his lesser share. Dhirubhai was the wizard, the wise said, the boys were just pale facsimiles. No one could anticipate how wrong the doomsayers were.

Far from drowning, the bruised brothers turned their fight into a kind of competitive piston — steroid-edged, determined — and clocked tremendous growth in the year and half since they split. When Dhirubhai Ambani died in July 2002, his sons' estimated combined net worth was $2.8 billion. (Enough to warrant him a funeral attended by the President of India.) In 2005, around the time of the split, the two had a collective net worth of $7 billion. This year, in the Forbes' list of the world's richest persons, Mukesh alone was valued at $49 billion, while Anil was valued at $45 billion. Forbes called their fighting a "silver lining." During a tea break at a Reuters conference in Mumbai recently, Finance Minister P. Chidambaram reportedly told journalists, "Who cares if the brothers are fighting, the markets are growing because the two are trying to outdo each other."

That's almost an understatement. The Ambanis have driven almost 30 percent of the bourse this year — that's roughly one-third of the country's growth chart. As many as 364 mutual fund schemes are invested in Mukesh and Anil's flagship companies, Reliance Industries (RIL) and Reliance Communications (RCom) respectively — an all-time record in the history of Indian markets. Ramesh Damani, a top broker in the Bombay Stock Exchange (BSE), calls the Ambanis the thunderball effect that's driven the Sensex to a record high of 20,000 points this year. No wonder he also calls them, "a tsunami that brings benefits". Much of the Ambanis' fabled power is rooted in their pedigree on the stock market. Although only about 3 percent of Indians (that is a mere 7 million Indians out of a working-age population of 321 million) invest in the share market, one out of every 4 stock-owning Indians own Reliance shares. And the others would like to own some. A measure of the astonishingly disproportionate hold the Reliance name has on middle-class Indian imagination.

Stock run A record 364 mutual fund schemes have invested heavily in companies owned by the two brothers PHOTOS: AP

Damani, who often joins Anil Ambani on his mandatory 10-km jog on the Nariman Point seafront, quotes figures from Value Research to prove his point. Last year, 170 mutual fund schemes were invested in Mukesh's RIL, with a net worth of Rs 3,542 crore. This year the number has jumped to 201 funds, up almost 18.23 percent, with a total value of Rs 7,572 crore. Similarly, the number of schemes holding Anil's RCom stocks has increased by around 50 percent. From 109 schemes worth Rs 1,513 crore last year to 163 schemes worth Rs 3,774 crore this year.

MORE SHOCK-and-awe numbers: In the last three months, the Sensex spiked about 30 percent before losing some ground. In the same phase, Mukesh's Reliance Petroleum climbed 90 percent, Anil's Reliance Energy surged 130 percent and his gas trading firm, Reliance Natural Resources, skyrocketed more than 250 percent. The shares of Anil's flagship RCom have risen more than 35 percent in the past three months, propelling its market capitalisation to $35 billion, while RIL's stock price has jumped 60 percent, making it India's largest listed company, with a market value of nearly $100 billion.

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All of this within a year and half of the split. No one's talking any more about the brothers' squabbles or Sunday breakfasts with their mother at Sea Winds, the Colaba mansion that is still home to both. No one's overly interested in Mukesh's slow reaction time to business plans or Anil's many pilgrimages (he is the only industrialist to have circled the Kailash Mansarovar thrice). "What has replaced gossip is growth," says Krishnan Sitaraman, Crisil's financial sector rating head. "Fund managers love to park their money in stocks that ensure a cushion in a bearish market. And these two companies are constantly on a growth curve." Chari Lokapriya, who manages 950 million dollars worth of stocks in India, Brazil and China at BNP Paribas Asset Management, London, says, "The brothers are geniuses in the market. They have consistently recognised the drivers of growth and built businesses to cater to that demand."

The ability to recognise drivers of growth is certainly the main fulcrum on which the brothers' gift for making money turns. The Ambanis believe in being first movers. Dhirubhai's ambition was to reduce phone call rates to 65 paise — the price of a post-card. He understood the untapped potential of mass markets. Reward your shareholders in your pursuit to be number one, he said. His sons have retained his mantra. Anil Ambani is always first to announce special rates for mobile users. And in the last year and half alone, he has amplified and diversified his interests in power, entertainment, hotels, real estate and communications. Mukesh, on the other hand, has consistently raised the stakes of the hydrocarbon game, investing thousands of crores in his refineries, developing the KG D-6 gas basin off the Andhra Coast, and buying oil exploration blocks across the world. His ambition: to become India's answer to Chevron. Similarly, his 6-billion dollar retail game plan, which involves setting up subsidiary stores across 1,500 cities and towns, seeks to destroy India's generations- old middlemen chain — supposedly to ensure low prices in his Reliance Fresh stores.

But acumen is not the only fulcrum on which the brothers turn. It is axiomatic that men cannot make astronomical wealth unless they have learnt to manage the world and bend it to their convenience. In a success-drunk society, that is part of their mystique. Two year earlier, when the Ambani empire was being sliced in half, it was rumoured that one of the thorniest divisions was their political access. In a country driven by favour rather than public policy, how were the famed hotlines to be shared? How were the Central and state bureaucracies to be divvied up? Itconvenience. In a success-drunk society, that is part of their mystique. Two year earlier, when the Ambani empire was being sliced in half, it was rumoured that one of the thorniest divisions was their political access. In a country driven by favour rather than public policy, how were the famed hotlines to be shared? How were the Central and state bureaucracies to be divvied up? It is impossible to map such ground accurately, yet many of the boundaries seem public. When Mukesh had trouble over the pricing of his gas wells off the coast of Andhra, his company blamed it on Chief Minister YS Rajasekhara Reddy, a supposed well-wisher of the younger sibling. Similarly, when Anil faces trouble with his airport, power and telecom projects, the unsubstantiated suggestion is that Civil Aviation Minister Praful Patel, Petroleum Minister Murli Deora and Telecom Minister A. Raja are playing ball for his brother. Anil himself is publicly close to Mulayam Singh Yadav, CPI leader AB Bardhan and CPM leader Sitaram Yechury. Mukesh, less conspicuously, is supposedly an intimate of 10, Janpath and has the goodwill of men like Prime Minister Manmohan Singh and Finance Minister P. Chidambaram.

Some suggest Anil's friendship with Mulayam Singh Yadav and Amar Singh was the seed of the split. "But Anil is a friend's man," says a confidant in Delhi, of course, on condition of anonymity. "He connects within five minutes or he doesn't. If you ever ask him about his associates, he will say, 'Do I ask you whom you mix with and why you mix with them?'" Driven by friendship or function, the brothers' shadowy presence in the political life of the country is unmistakable. They are often said to mould business- friendly policy behind the scenes. This may outrage purists and competitors, but makes their stakeholders immeasurably happy.

FOR THE moment though, neither acumen nor political connection is as powerful a fulcrum as the competitive piston between the brothers, fuelled by a subterranean need to emerge the best. Colleagues and analysts say nothing is driving the brothers' growth more than their fight to flourish. At the time of the split, they had signed a non-competitive clause that would hold valid for five years. They were not to encroach on each other's interests. The resolve dipped in barely a year. Both brothers have bid for the hi-profile Mumbai Trans Harbour Sea Project, which will construct the first bridge across the sea in India, linking Sewri Island to Navi Mumbai; both have bid for the Mumbai airport development project; and Anil has begun to express interest in NELP (New Exploration Licencing Policy) and in bids for oil fields across the globe — his brother's core terrain.

Earlier this year, Mukesh was deliberating with his top honchos at around 9pm in his Makers Chamber office in Mumbai, when news came that Anil had decided to turf him and his employees out of the sprawling Dhirubhai Ambani Knowledge Centre (DAKC) in a month's time.DAKC now belonged to the younger brother and though the eviction could have waited till 2008, Anil was in a hurry. Finding room for 1,200 employees at a month's notice in space-challenged Mumbai seemed bleak, given that Mukesh's own Reliance Corporate Park, located half a kilometre away, was still under construction. But neither brother is accustomed to defeat. Mukesh stayed late in office that night burning the lines. In three week's time — 22 days to be precise — 1,200 RIL employees had been relocated in a new office six kilometres away.

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But the race expresses itself in other — healthier — ways too. Days after Mukesh's company discovered a gas well in the Godavari basin a month ago, Anil was seen negotiating with the New York-based Starwood Hotels and Resorts to launch its upscale St Regis brand. Simultaneously, Anil's RCom is also set to expand its BPO operations over the next two years, moving from its current strength of 7,800 employees to 30,000 employees. (According to Nasscom, the Indian BPO industry, which currently employs 5,53,000 people, is expected to increase its exports to $11 billion from the current $6.3 billion figure.)

Both brothers are a chip off the old patriarch; both have an instinct for trouble-shooting. This makes the race more complex, more acetylene. 2007 has seen both brothers firefighting: Mukesh with his troubled retail ventures in UP and Jharkhand; Anil with rivals Vodafone and Airtel over the GSM tangle. Interestingly, their approaches have been similar. If either group is visibly enveloped in tension for a day, be assured the next day they will be clinching a mega deal in some other part of the world. And announcing it. Both brothers understand the Reliance name must always exude buoyancy.

Examples abound: 24 hours after a Bangalore- based lawyer, released a book questioning Mukesh's business ethics, RILVice President EVS Rao announced plans to invest a whopping Rs 17,000 crore in oil and gas exploration over the next five years. The markets ignored the first news but reacted instantly to the second.

Similarly, days after Anil had upped the ante in the ongoing spectrum war by writing a letter to Communications Minister A. Raja in November, accusing GSM operators of cornering spectrum under the valuable 900 MHz, and triggering tensions on the bourse, his company — the country's number two mobile services operator, which already operates CDMA services in 21 of India's 23 telecom zones — announced that it was placing an order for 70 million new GSM lines in the coming year, valued at $5.6 billion, and is pushing to keep the per line cost at around $50 as against the current market rate of $80. The shares faithfully vaulted.

Little wonder that, at least on paper, the ascent of many Reliance companies' stocks has been huge and propped the two Ambanis at close to $100 billion (Rs 3.96 trillion). "The rise in share prices of these companies is much higher than fundamentals should allow," says veteran analyst SP Tulsian. "But it is growing simultaneously on both sides of the fence, primarily on market rumours of better profits and new expansion plans.

"They are experts in manipulating the system to their benefit. Government after government has moulded policies to suit the
undivided Reliance, and now, the divided Reliance. The Birla family issue is still in the courts, the Bajaj tension is very much in the news, but you will see not a line about the animosity between the brothers. Maybe someone told them to fight in private and get on with business," says public interest lawyer Prashant Bhushan, who has been tracking the company for years and questions many of their practices. He has hardly ever seen the Ambanis file defamation suits against those who malign them. "Perhaps they know better ways to handle such crises in life," he says wryly.

SOCIAL ACTIVIST Sanjay Kaul has another insight into the brothers' functioning. At a time when older blue-chip companies like the Tatas are constantly in the news over social conflicts related to their projects, Reliance has managed to keep a surprisingly low profile. When tensions mounted recently in Haryana and Punjab over land acquisition for their SEZ, RIL officials apparently spent long hours with the farmers explaining why they should not agitate because the value of their land — sold cheaply to the state government — had gone up. "I've not heard of any agitation thereafter. I don't know if they promised everyone jobs at the SEZ," says Kaul.

Nobody would deny the brothers understand buoyancy, market sentiment, and how to bend the world to their will.

So far the brothers have displayed many of the famed qualities of the father: doggedness, acumen, foresight, gumption, and a pragmatically elastic view of business ethics. But what are their individual traits? What will drive them in the future when the impetus of the feud has waned a little? No one will hazard the psychoanalysis. But a few incidents offer insight.

Mukesh, to use Praful Patel's words, "is a nononsense man whose only focus is work, work, and work." That focus seems to have yielded the no-nonsense man impossible personal wealth. This year, Mukesh famously outstripped Bill Gates, Warren Buffet and Carlos Slim Helu to be the richest man in the world; famously gifted his wife Nita a Rs 250-crore customised jet; and is famously building a 27-storey house in South Mumbai, which will house 370 servants, a helipad and 6-floors of car parking. As some starryeyed wannabe computed: if Mukesh spends one crore a day, it will take 400 years for him to run through his current wealth. Says ad guru Alyque Padamsee, "Mukesh is like a Pharaoh who keeps building these pyramids one after another, so big that people forget the last one."

But curiously, the pharaoh does not seem to revel in the pharaoh's luxuries. Or, at least, in reports of them. When news of him pipping Gates and Buffet made headlines, Mukesh apparently called Suhel Seth, Delhi's most networked ad man, and lamented, "When will the dailies know such news does not make me happy? I wish the papers would write about my vision and my difficulties in putting my plans in place instead." Minutes after the wires reported the development, RIL issued a quick clarification asserting the calculations were inaccurate. And later, at a shareholders' meeting, Mukesh brought up the subject again. "There have been several reports in the media about my personal wealth. Frankly, I'm amused. It matters little to me whether my personal fortunes are measured in billions or millions," he said. (Kukaswada, the village Dhirubhai came from — a poor, saline settlement in the Junagadh district — and which has benefited very little from the association, might wonder why Mukesh won't share out the difference. But that is a hypothetical argument.)

The younger brother has a different metabolism. In a sense, he has more to prove. Divested of his father's logo, he is working on creating another identity: the Anil Dhirubhai Ambani Group. Six agencies, including McCann and JWT and Profit, a US-based brand strategy group, are working on his identity. Megastar Amitabh Bachchan and son Abhishek are on board as ambassadors. So is Mahendra Singh Dhoni. Analysts say Anil's group is associated with all the virtues of the old company: size, stability and performance. What its added to itself is the image of a youthful company trying to take on the world. Think Bigger is their magic mantra. Anil acted quickly on that with the branding of his FM channel. The agencies had branded it Radio Mango. Anil vetoed that for Big FM, a campaign personally supervised by him.

Suno Sunao, Life Banao is their tagline. That works equally for both brothers.

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