The Ambani brothers have cornered more than half of the total foreign direct investment attracted by the country in the first three months of 2011, aided by mega deals with British Petroleum and Nippon Life.
The Ambani brothers have cornered more than half of the total foreign direct investment (FDI) attracted by the country in the first three months of 2011, aided by mega deals with British Petroleum and Nippon Life.
On May 23 last year, the long-sparring brothers put aside their differences and agreed to end the non-compete agreement that had until then prevented them from entering the same sectors.
While this opened up new areas for the ambitious duo, more so for Mukesh Ambani’s Reliance Industries (RIL), it also unwittingly opened up the floodgates of FDI to India.
Indian companies have announced a total of 66 deals worth $12.9 billion since the start of the year, as against 52 deals valued at $1.6 billion in the same period last year, according to business information group Dealogic.
The brothers — Mukesh and Anil — have garnered about 61% of the total value of these deals, or around $7.88 billion, though the money will flow in only after regulatory approvals are obtained.
In February, RIL announced that it will sell 30% stake in 23 of its oil and gas blocks to European oil giant BP Plc for $7.2 billion.
And on Monday, Anil Ambani-owned Reliance Capital said it was selling 26% stake in its life insurance arm to Japanese major Nippon Life for $680 million.
More significantly, people familiar with the workings of the two brothers expect both camps to announce more multi-billion dollar deals in the year ahead.
Goldman Sachs estimates RIL to have cash flow of $20.2 billion starting next fiscal, while many believe Anil Ambani has found help in Chinese-banks to bankroll many of his ambitious projects.
Not everyone, though, is excited by these numbers.
“It’s a mere coincidence. I won’t read too much into it,” Girish Vanvari, executive director at KPMG India Pvt Ltd, said.
FDI flows to India, which had slowed down due to inflation, governance issues and the government’s dithering attitude towards fast-track reforms, among others, have lately been picking up.
But just what explains the two brothers roaring back after battling each other for five years?
Experts believe it is the “peace pact” that is making the brothers go on an overdrive. It is no coincidence that the majority of the deals struck are in sectors outlined in the truce.
As a release mentioned at that time, “The cancellation… provide enhanced operational and financial flexibility to both groups, and greater ability to participate in high growth sectors of the Indian economy, such as oil and gas, petrochemicals, telecommunications, power, and financial services.”
The non-compete agreement had a clause that gave either brother a right of first refusal, preventing them from striking deals with third parties for selling equity in group businesses.
Significantly, of the $11.15 billion deals announced in the oil and gas space, Reliance alone has done deals to the tune of $8.95 billion.
In addition to attracting investments, namely the $7.2 billion deal with BP, RIL has also been on an investing spree both in India and abroad. It bought two shale gas assets in the US —- in June last year, it paid $1.35 billion for picking a 45% stake in Eagle Ford shale gas field and just two months later, it paid $392 million to pick a 60% stake in Marcellus shale acreage.
The country’s telecoms space has seen Indian companies announcing $2.23 billion deals since May last year. RIL alone corners half of this value, after buying a 95% stake in Infotel Broadband Services Pvt Ltd for $1.02 billion in June.
Additionally, it paid $2.74 billion for a pan-India licence to roll out broadband services.
The younger Ambani scion’s $680 million deal in financial services is close to half of the $1.1 billion done by other Indian companies.
In the Power sector, Reliance Power announced in October-end that it will place a $10 billion order with Shanghai Electric Group Company for getting 30,000 mw capacity of boiler, turbine and generator packages for its coal-based power plants. This is close to 60% of the $16 billion deals announced in the space.
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