Cracks in India's first business
family By Raju Bist
MUMBAI -
Smelling blood, Indian TV anchors have been breathlessly
changing the epithet to the story with every new
bulletin. They first called it a "rift", but are now
convinced that it is nothing short of a "split".
At the center of
the guessing game are brothers Mukesh and Anil Ambani,
who have been running India's largest private-sector
conglomerate, the Rs990 billion (US$21 billion) Reliance Group.
Rumors of a possible estrangement between the two
have been floating around for the past two-and-a-half years after
the death of their father Dhirubhai Ambani, a
former gasoline-pump attendant who went on to build
the textiles, petrochemicals, chemicals,
power, telecommunications, financial services and life-sciences empire in just
a little over three decades. Business observers
didn't fail to notice that Anil kept away when
Mukesh inaugurated the Dhirubhai Ambani Knowledge City in
Navin Mumbai (New Bombay) two years ago - a mega-event on the
Reliance calendar.
But now the news has been
"confirmed" after Mukesh admitted to CNBC-TV 18, India's
only business channel, that he had been having
differences with his brother, Reliance Industries vice
chairman and managing director Anil, over "ownership
issues". The differences were in the "private domain",
he added, and would not affect the working of Reliance
companies, which were "professionally managed".
But the stock markets thought otherwise. In a
single afternoon (Friday, November 19), the market
capitalization of major Reliance companies - Reliance
Industries, Reliance Energy, Reliance Capital and IPCL -
plummeted by Rs40 billion. The bloodbath continued into
Monday morning when the markets reopened after the
weekend break.
Reliance Industries operates the
world's third-biggest oil refinery. It also produces 12
million tonnes of petrochemicals every year. The
flagship company owns 45% of Reliance Infocomm, India's
biggest cellular phone company, and half of Reliance
Energy Ltd, which supplies power to two of India's
biggest cities - Mumbai and New Delhi.
Reliance
stocks are some of the most actively traded on the
Indian stock markets. Ever the pioneer, Dhirubhai Ambani
had eschewed the slow and corrupt nationalized banks for
Reliance's initial funding and had instead tapped the
large, savings-oriented Indian middle class. In the
process, he sparked off an equity cult and became the
darling of the Reliance investor "family", rewarding
them repeatedly with generous dividends, bonus shares
and innovative financial products like convertible and
non-convertible debentures. Today, 3 million Indians own
Reliance shares.
What has added to the
nervousness of the markets is the confirmed bit of news
that Dhirubhai, who died on July 6, 2002, did not leave
a will. "During his lifetime and till the time of the
patriarch's death, the brothers appeared to be very
close and that's why perhaps Dhirubhai never felt the
need to make a will. He was confident that the two would
continue to work together long after he would be gone,"
says a Mumbai-based professional close to the family.
This is not the first time that the group has
been caught in controversy. The senior Ambani had set a
scorching pace of growth for his group, but was often
accused by competitors and the media of having
influential politicians and bureaucrats in his pocket.
It was alleged that his business methods were not always
straight and that the group influenced and twisted
government policies to suit the family. But such was the
senior Ambani's clout that no charge stuck for long.
This time, the story is not going away in a hurry.
So what led to the split in such a short time
after Dhirubhai's death? The answer lies in the
temperaments and style of functioning of the two
brothers. The job profiles of the two had been earmarked
before the death of their father, who was ailing in his
final years. Mukesh is chairman of Reliance Industries,
Reliance Infocomm and IPCL and director of Reliance
Europe Ltd. Anil, on the other hand, is chairman of
Reliance Energy, vice chairman of IPCL and a director
with Reliance Europe Ltd.
Mukesh
Ambani, the elder
of the two, has a sharp technical mind. He is shy and
withdrawn and likes to operate from behind the scenes.
"Reticent" and "low profile" are the words often
used to describe him. The only social functions where he
is seen publicly relate to his companies. A journalist
recalls attending an Ambani private do with a common
friend. As soon as Mukesh realized he was talking to a
media person, he clammed up. It was only after his
father's death that he started giving press interviews,
that too very sparingly.
On the other hand, the
flamboyant Anil Ambani is as extrovert as they come,
always game for a quick quote or byte. A fitness freak,
he jogs on Mumbai's roads before sunrise, and even
participated in the city's marathon last year. He
recently won the Youth Icon award instituted by MTV
channel. Among his friends are film folks and
socialites, some of whom accompany him on trekking trips
to the Himalayas. An excellent communicator, marketing
and financial brain, it was always the media-savvy
younger brother who would brief the press after the
group's financial results were declared.
It was
only natural that the dissimilarities would extend to
their personal lives too. While Mukesh married a
schoolteacher from a middle-class Gujarati (the
community the Ambanis belong to) family, the headstrong
Anil ended up marrying a former film actress -
unthinkable in the conservative Ambani family. This, say
insiders, was the first cause of friction between the
brothers.
According to the
Business Standard newspaper, Anil has been miffed over the past
few months by certain decisions made at companies controlled
by his elder brother: the single-point responsibility
for all financial and investment decisions at
Reliance Industries given to Mukesh, the ambitious roll-out
of the mobile-telephony business of Reliance Infocomm and
Reliance Industries' move to postpone by two years the
supply of gas to Reliance Energy, which is managed by
Anil.
According to a corporate watcher, "The
brothers take business decisions worth millions of
dollars. There is not much of an age difference between
them and a fair amount of ego play may also have crept
in. In such large groups, inevitably there are coteries
formed around key players and in Reliance they may have
influenced the brothers to some extent."
But the
final straw came when the younger brother was nominated
a few months ago as an independent member of the Rajya
Sabha, the upper house of the Indian parliament, with
the help of the Samajwadi Party. The northern Indian
political outfit, which rules over India's most populous
and politically important state of Uttar Pradesh, is led
by the controversial Mulayam Singh Yadav, a master at
caste-based politics. It was Yadav, a personal friend of
Anil, who invited him and his Reliance Energy to set up
the world's largest gas-based power plant in Uttar
Pradesh.
Indian politicians and industrialists have
always tangoed. But with the country still to set in
place any law for political funding, this relationship
has always been discreet. Big business houses
like to keep all major political parties happy and
well funded, not knowing which one of them might
come to power after the next elections. According to
family insiders, Mukesh did not like Anil openly
flaunting his association with the Samajwadi Party.
Splits in Indian business families are
a recurring phenomenon. Nearly every large Indian
business family is now in disarray, starting with the oldest
of them all - the Birlas. The Mafatlals, who used to be
the third-largest business family after the Tatas and the
Birlas, started disintegrating after the three founding
brothers fell apart. In the Goenka clan, brothers R P
and G P Goenka are inactive now, their businesses run by
the next generation who have nothing in common with one
another. The Kirloskars, a pioneering industrial family
from Maharashtra, India's most industrialized state, are
no longer the business dynamos they used to be. Manu and
Kishore Chhabria, who built up a formidable liquor
empire in just under a decade, fell out so bitterly that
the former accused his younger brother of stealing his
company. Gujarmal Modi set up a huge business empire in
the 1930s, sprawling across three northern Indian states.
Today, each member of the third generation is doing his
own thing.
But what makes the Ambani split
newsworthy is the fact that it happened so suddenly, at
a time when most of the Reliance companies are reporting
good results. Should the brothers go in for a formal
split, it is not clear how the family wealth will be
divided. The family controls its personal stake in
Reliance companies through a complex web of
cross-holdings in numerous investment firms. This is the
way it is done in most Indian business groups, mainly to
keep the taxman at bay. Of paramount significance is the
Ambani family's 46.67% equity in Reliance Industries,
now worth Rs355.52 billion.
It is also not clear
if Dhirubhai Ambani had registered his companies and
investment firms under the Hindu Undivided Family (HUF)
law. Under the Hindu law of succession, the personal
property of a man who dies without leaving a will has to
be divided among his wife and children, but property
registered under HUF law has to be divided among the
wife and sons only. Apart from the two sons, Dhirubhai
has two daughters, Nina Kothari and Deepti Salgaonkar,
both married. So, if he did not register under HUF law,
the property will have to be further split between the
daughters too.
To complicate matters, the
normally gregarious Anil went into a shell once the
controversy broke. Mukesh's office kept stalling
reporters. He has just returned from a business trip to
the US and, predictably, has issued a statement saying
that CNBC-TV 18 quoted him out of context. Observers
feel this has been done more to calm foreign investors
who had been dumping Reliance shares on Friday and who
control 30% of the total equity in Reliance companies.
But the matter continues to simmer. Proof: the four
siblings were expected to meet on Tuesday afternoon at
their south Mumbai residence for a meeting called by their
mother Kokilaben. Anil has finally issued a press statement
to say he will abide by any decision taken by his
mother on the ownership issue. Clearly, the family realizes
that Mukesh's contention of certain matters being
in the "private domain" has not gone down well with
the public. Understandably, as four of the eight Reliance
companies are listed on stock markets across India.
Thanks to Dhirubhai's vision, every fourth Indian investor
is a Reliance shareholder. The late pioneer could
never have dreamed that his closely knit family
would start crumbling so soon after his death. But then,
everything about Reliance has been larger than life.
So is the feud between the Ambani brothers.
Raju Bist is a Mumbai-based freelance
journalist. He can be contacted atinwo@rediffmail.com
.
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