Ambani brothers may narrow gap
Since the billionaire Ambani brothers split the Reliance group in January, investors who stuck with Mukesh Ambani's oil business have reaped an 83 percent return, three times that from Anil Ambani's companies.
Now shares of the energy, communications and finance units that younger brother Anil runs are poised to catch up. He is adding users in the world's fastest-growing cell-phone market and spending 200 billion rupees (HK$34.8 billion) to build the world's biggest gas-fired power plant.
"Reliance Energy could be the dark horse next year," said Sanjay Lodha, Hong Kong-based senior investment adviser at Pictet Asia. "Demand for power is going to outstrip supply, so we should see utilities doing well."
The splitting of Mumbai-based Reliance was the biggest shakeup in Indian corporate history. Mukesh, 49, squabbled with Anil over a group with US$23 billion (HK$179.4 billion) in sales, equivalent to 3.5 percent of India's economy. In a deal brokered by their mother, Mukesh kept the oil and chemicals business, Reliance Industries, while relinquishing the rest to Anil, 47. For investors, the split was painful. Anil-controlled Reliance Energy is the second-worst performer on the 30-stock Sensitive Index this year. His Reliance Communications, India's second largest mobile phone operator, lost a third of its value in the three months after its March 7 listing.
A US$1,000 wager on Mukesh, who owns India's largest oil refinery, has reaped US$1,804 since the January 18 split. A similar bet on Anil paid US$1,343 as investors showed concern Reliance Energy could not secure cheap supplies of natural gas to run its plants.
The differences may narrow. India will add the equivalent of the entire population of the United States and Germany in new mobile phone subscribers by 2010 and is spending US$17 billion to double the nation's power transmission network to 125,000 kilometers.
Anil is offering LG Electronics handsets for as little as US$45 to lure customers. Mobile phone subscriber additions in India overtook China in September for the first time as it added a record number of users. Reliance Capital, which runs India's third- biggest mutual fund, and through which Anil is buying stakes in cinema multiplexes and insurers, may be another winner next year. Life-insurance coverage in India, which has one of the lowest penetration rates in Asia, will almost triple in the next five years, according to the Insurance Regulatory & Development Authority.
After the split, Reliance's shareholders got shares in the brothers' units. For every 100 Reliance Industries shares they owned, investors received five shares of Reliance Capital, seven and a half shares of Reliance Energy, 100 shares of Reliance Communications and 100 of Reliance Natural Resources.
Reliance is among 18 family-run companies listed on India's Sensex. With a combined market value of US$61 billion, the Ambani companies account for about 15 percent of the index's weight. Mukesh and Anil, ranked the second- and third-richest Indians by Forbes, have their work cut out for them as mounting competition makes it harder to expand.
Anil's Reliance Airport earlier this month lost a suit challenging the sale of the nation's two busiest airports, at Mumbai and New Delhi.
The recent share-price increases in some of Anil's companies also have made them more expensive than some in Mukesh's empire.
Mukesh has his fair share of problems, too. Reliance Industries may raise its borrowing to help get US$13 billion to fund setting up trade zones, retail outlets and rising costs at its oil exploration venture. The company said this month it will borrow US$2 billion, raising its loans by a third.
Still, investors such as India Capital Fund's Jon Thorn expect both brothers to benefit from the world's second- fastest pace of economic growth.