Anil Ambani-Mukesh Ambani asset-swap deals on?

The Anil Ambani group’s move to transfer three power projects from Reliance Infrastructure to Reliance Power on Friday is widely believed to be the first step towards implementing a series of equity infusion deals and swaps between the Mukesh and Anil Ambani groups.

According to sources, the 400-page agreement between the two brothers announced last Sunday has extensive provisions that provide for ‘cash infusion’ into the cash-strapped Anil Ambani group businesses.

Among the Anil group businesses that are in need for cash are Reliance Power, the group’s power generation entity, Reliance Infrastructure, the group’s engineering and utility company, and Reliance Communications, the telecom arm.

“Cash is going to come to the Anil companies,” saida person close to the Reliance empire. According to sources, the contours of the exact funding of the Anil group’s businesses by the Mukesh group is a secret known only to the very few people who thrashed out the agreement.

Speculation, however, is rife that equity stakes will be ceded to Mukesh in prime Anil Ambani companies.

Market sources too were generally supportive of such a move. While RIL is sitting on a veritable cash machine in the form of gas fields in the Krishna-Godavari Basin, the Anil group has had to apply brakes voluntarily on some of its businesses such as power and infrastructure due to the high debt levels.

The group is in charge of putting up several high-profile infrastructure projects such as the Mumbai mono-rail and several “ultra mega power plants” such as Sasan, Krishnapatanam, Tilaiya etc.

Each of these mega projects require tens of thousands of crores of rupees and require a fourth to a third of the funding to come in the form of equity investment, with the remaining coming from debt.

The group’s telecom arm, Reliance Communications, too faces huge funding requirements. It will have to spend around Rs 12,000 crore on 3G spectrum and rolling out services, excluding marketing expenses.

Its subsidiary, Reliance Wimax is engaged in another cut throat spectrum auction that may require an investment equally large, over the next one year.

A swapping of assets will also help the two groups get over regulatory hurdles that have kept the two from entering into a gas sale contract with each other.

Without a firm assurance of gas supply, such as that provided by owning a gas block, Anil Ambani group is known to be reluctant about investing tens of thousands of rupees over 3-4 years to set up power projects that run on gas.

Anil group officials, meanwhile, maintained that the reshuffle of the three power generating units from Reliance Infrastructure to Reliance Power was in keeping with the group’s policy of having producing assets at the latter firm. However, the units that have been transferred have been in operation for several years, raising the question of the timing of the transfer.