There was a time when billionaire Mukesh Ambani and his younger brother Anil lived with their mother in the same house in Mumbai, while they fought in the Indian courts over their father’s empire. Dhirubhai Ambani died in 2002 without a will – and thus the brotherhood. As part of a 2005 family settlement, Mukesh gained control of deep-sea farms in the Bay of Bengal, which had just started producing gas. But the agreement also required them to supply cheap feedstock to Anil’s proposed power plant at a fixed price for 17 years. Honoring that agreement may have ended the power cut in New Delhi, but it would have crippled Mukesh’s Reliance Industries. Fortunately for the elder brother, a Supreme Court ruling in May 2010 went in his favor: gas was treated as Indian sovereign property, and not given to Mukesh. Two weeks later, the brothers agreed to remain in “harmony” and ended most non-compete clauses of their separation, including Telecom, where Anil ran a service. Mukesh entered the market, a move that would see him currently standing as the 10th richest tycoon in the world with a net worth of $90 billion.
Since then, gas exploration has proved to be a dampener and many of Anil’s firms have gone bankrupt. So, it was symbolic that when Mukesh Ambani rolled out his succession plan this week, he started with his telecom service Jio. His 30-year-old son Akash will replace him as chairman at India’s top wireless carrier, though the vice-chancellor will continue to hold Jio Platforms, which owns all digital assets. This could be a stopgap until Jio Platforms, whose investors include Meta and Alphabet Inc, wraps up its much-anticipated initial public offering. Akash’s twin sister Isha is widely expected to lead Reliance’s retail business. The youngest of three children, 27-year-old Anant may head the oil-to-chemical business. But with a twist: He’ll have to complete his father’s pivot away from hydrocarbons toward clean energy.
Mukesh Ambani began talking about a “significant leadership change” at an employee event last December. It’s hard to say what the final arrangement will look like. But it would not be surprising if retail, telecommunications and energy ended up being professionally managed and independently listed companies, with equity participation and operational support—from one or more strategic partners. In this scenario, the children, as well as Ambani and his wife Nita, can take control through their shares in Reliance Industries, which will have a stake in Jio Platforms, Reliance Retail and the energy business, Reliance O2C. Such a structure will not be without problems.
Separate stock-market listings for units could upset Reliance with a permanent holding-company discount: the tendency of the stock market to value a group at less than the sum of its parts. But de-merging them – so that Reliance’s investors directly own a proportionate share of the entities – could destroy the strength of the consolidated balance sheet. Fitch Ratings measures Reliance’s foreign exchange creditworthiness at the BBB, which is a notch higher than India’s government debt. Reliance has a major advantage of cost of capital as it has high operating leverage and very little debt, an edge that could be very important for the next generation.
If this is indeed the preferred template, the model is less of an IPO for Jio platforms: Google not only invested in Jio, but also helped out with a cheaper, Android-based phone; Facebook’s WhatsApp service can help local JioMart stores take customer orders and pay over the phone. Ambani wanted similar deals with Amazon in retail and with Saudi Aramco for its oil business. But instead of partnering with Amazon, there is now intense competition and Aramco’s courtship of Reliance collapsed. Even worse, Bloomberg News reported that arch rival Adani was flirting with Aramco. With so much happening, Mukesh Ambani would like as little boardroom drama as possible.
When Mukesh and Anil Ambani were taking their gas dispute to court in 2009, the combined stock market value of their empires was $108 billion — five times what they were worth before the family settled. Now, Mukesh’s Reliance Industries is worth $221 billion, while Anil’s group is left with the only value left, apart from power generation, transmission and distribution, that creditors can get from bankruptcy proceedings against several of his firms.
For now, the Ambani children would like to keep their ties with Reliance’s motherhood; Which means they have to accept the group’s capital-allocation policies, even if they are free to do their jobs. It’s possible that their father can do the best they can for them – and the group – without undermining the whole. The transition is better than what he had to endure.
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia.