Implication Of Ambani Brothers Dispute Commerce Essay

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Dhirajlal Hirachand Ambani, also known as Dhirubhai, 28 December 1932, - 6 July 2002, was an Indian rags-to-riches business tycoon who founded Reliance Industries in Mumbai with his cousin. Ambani took his company (Reliance) public in 1977, and by 2007 the combined fortune of the family (sons Anil and Mukesh) was 60 billion dollars, making the Ambani's the second richest family in the world, next to the Walton family. Dhirubhai has been one among the select Forbes billionaires and has also figured in the Sunday Times list of top 50 businessmen in Asia.

Reliance industry

Reliance, acknowledged as one of the best-run companies in the world has various sectors like petrochemicals, textiles and is involved in the production of crude oil and gas, to polyester and polymer products. The company's refinery at Jamnagar accounts for over 25% of India's total refining capacity and their plant at Hazira is the biggest chemical complex in India. The company has further diversified into Telecom, Insurance and Internet Businesses, the Power Sector and so on. Now the Reliance group with over 85,000 employees provides almost 5% of the Central Government's total revenue.

Reliance after Dhirubhai

Anil and Mukesh Ambani Enter Into the Business

In 1986 after a heart attack he has handed over his empire to his two sons Anil and Mukesh. His sons are carrying on the successful tradition of their father. In November 2004, Mukesh Ambani in an interview, admitted to having differences with his brother Anil over 'ownership issues.' He also said that the differences "are in the private domain." He was of the opinion that this will not have any bearing on the functioning of the company saying Reliance is one of the strongest professionally-managed companies. Considering the importance of Reliance Industries to the Indian economy, this issue got an extensive coverage in the media. The Reliance empire was split between the Ambani brothers, Mukesh Ambani getting RIL and IPCL & his younger sibling Anil Ambani heading Reliance Capital, Reliance Energy and Reliance Infocomm. The entity headed by Mukesh Ambani is referred to as the Reliance Industries Limited whereas Anil's Group has been renamed Anil Dhirubhai Ambani Group.

http://en.wikipedia.org/wiki/Dhirubhai_Ambani

Dispute between brothers

The origins of the dispute go back to July 2002, when the senior Ambani died intestate. Soon, disagreements emerged over the roles of the two brothers and a split became inevitable. Eventually, a truce was brokered in the summer of 2005 by senior banker K.V. Kamath; Dhirubhai's wife Kokilaben also played a key role in getting her sons to come to an agreement and sign a "family pact."

As part of the deal, the flagship Reliance Industries Ltd. (RIL) went to Mukesh. His share also included the retail and natural gas exploration businesses. Anil got Reliance Communications (R-Com), the energy business, financial services, infrastructure and entertainment. According to Forbes, Mukesh is the world's richest Indian with a net worth of US$20.8 billion, while Anil clocks in at number 3 with US$10.5 billion. They are the world's richest brothers.

Despite the truce that has existed in theory for the past four years, business associates claim that rivalry has persisted between the brothers. The two competed to win the Mumbai Trans Harbor Link; both lost the US$1 billion plus project. Last year, when Anil's R-Com was negotiating a merger with MTN of South Africa, RIL claimed that it had the first right of refusal in case the junior Ambani wanted to sell out. (The deal was being structured through an initial sale of an R-Com stake to MTN.) There was sparring over special economic zones. More sinisterly, when stones were found in the fuel tank of Anil's helicopter, some people alleged "business rivalry" was to blame.

Ambani brothers in fresh gas dispute

RIL issues notice to Reliance Infra to pay dues for supplies to its Andhra power plant. The Ambani brothers have opened yet another front in their dispute over gas supplies from the Krishna-Godavari basin, with Mukesh Ambani-owned Reliance Industries Ltd (RIL) issuing a notice to a power plant run by Anil Ambani-owned Reliance Infrastructure, threatening to stop gas supplies for non-payment of dues for the first fortnight of September

Reliance Infrastructure (RelInfra) Ltd operates the 220 Mw Samalkot power plant in the East Godavari region . The plant requires 1.1 million standard cubic meter a day of gas of which RIL was supplying 0.52 mscmd on a fall-back basis in August though the agreement was for 0.19 mscmd at a price of $4.2 per million British thermal unit.

The two companies had signed a Gas Sale and Purchase Agreement (GSPA) on April 27 after an empowered group of ministers allocated the Andhra plant gas supplies.

Earlier this month, RelInfra wrote to RIL stating that it would not pay any marketing margins on the gas since the charge was illegal and unwarranted because it was not a result of any marketing undertaken by RIL or any other agency. RIL had claimed $0.135 per million British thermal unit as marketing margin from RelInfra over and above the base price of $4.2 a unit.

RelInfra had so far been paying RIL the marketing margins but now says the margin is illegal since it does not have government approval.

The two groups are already locked in an intense legal dispute over supply of gas from RIL's D6 field in the Krishna Godavari basin at a price of $2.34 per mBtu for Anil Ambani's impending plant at Dadri in Uttar Pradesh.

An RIL spokesman said the company's notice, issued on September 22, "has been issued in accordance with the terms of the Gas Sale and Purchase Agreement executed between RIL and RelInfra".In response to RIL's notice, RelInfra said the marketing margin was in contempt of a Bombay High Court order of January 31, 2009, and was also in violation of a production sharing contract and a government executive order that approved the price. It said the court had permitted RIL to sell gas as an interim measure at a price of $4.2 a unit. "We are making due payment of the sale consideration i.e. $4.2 per million Btu for supply of gas under the GSPA. We are not liable to make payment of any illegal and unauthorized charge," said the RelInfra letter sent to RIL today.

The government has so far maintained that it has not fixed or approved the amount of marketing margin on natural gas sales by any contractor and the issue should be discussed by the buyer and the seller as part of GSPA.

http://www.business-standard.com/india/news/ambani-brothers-in-fresh-gas-dispute/16/49/371208/

The latest Ambani dispute discourage investment in India's energy sector.

The wrangle over an energy deal between billionaire Ambani brothers has highlighted the risks inherent in an economy dominated by big family businesses and spurred calls for the government to intervene. 

The latest dispute between the feuding brothers could discourage investment in India's energy sector as the country scrambles to shore up its energy security.  It also tests governance standards for a nation that ranks a lowly 180 when it comes to enforcing contracts on the World Bank's index on ease of doing business. Only Benin ranks worse. 

 

LITERATURE REVIEW

1. The Ownership Saga at Reliance Industries Ltd. and Corporate Governance Practices at the Company

Syeedun Nisa (2008) The Reliance Industry Ltd., one of the India's best private sector enterprises recently landed into lots of controversy and trouble because of ownership issues and subsequent quarrels between the two brothers - Anil and Mukesh Ambani. After the dispute between two brothers occurred, this thing also came to the picture that the industry which claims to be following good governance practices and was also awarded by government as India's best company for corporate governance is actually not so good in corporate governance. The paper aims at discussing about the reliance industry and corporate governance practices that are followed in the company.

2. Anil Ambani says wants to resolve dispute

Sunil Aggarwal (2008) Anil Ambani called on Sunday for a renewed effort to end a bitter feud with his brother triggered by the carve-up of up a vast family business stretching from energy to telecommunications and financial services. He said in a statement he believed "all disagreements can be sorted out in a constructive, cordial and conciliatory manner", and called for "a generous heart, a willing mind and accommodating spirit to resolve issues".

The row between Anil Ambani and his brother Mukesh has unnerved investors considering oil and gas exploration in India. Their latest dispute is over a deal for Mukesh Ambani's Reliance Industries to sell gas to Anil Ambani's Reliance Natural Resources at below-market rates as agreed in a 2005 family settlement to divide the business following their father's death in 2002.The gas dispute has led to a near-daily exchange of words, and Anil Ambani has accused the Petroleum Ministry of taking the side of Reliance Industries. The government has lodged a petition with the Supreme Court to intervene in the case, arguing gas is its property, and that the private pact is not valid.

3. Ambani BrothersHYPERLINK "http://www.vccircle.com/500/news/ambani-brothers-gas-dispute-ups-india-investment-risks"'HYPERLINK "http://www.vccircle.com/500/news/ambani-brothers-gas-dispute-ups-india-investment-risks" Gas Dispute Ups India Investment Risks

Y.S. Rajasekhar (2008)

The wrangle over an energy deal between billionaire Ambani brothers has highlighted the risks inherent in an economy dominated by big  family businesses and spurred calls for the government to intervene. The latest dispute between the feuding brothers could discourage investment in India's energy sector as the country scrambles to shore up its energy security. It also tests governance standards for a nation that ranks a lowly 180 when it comes to enforcing contracts on the World Bank's index on ease of doing business. Only Benin ranks worse.

The gas in dispute comes from the vast Krishna Godavari (KG) basin, and some in India have said terms of access to such a crucial resource in an energy-starved country should not be left in private hands. The government has largely been silent, which could make investors wary, said strategist Arun Kejriwal at KRIS Research.

4. Ambani vs. Ambani The anatomy of a dispute

A three-member Supreme Court bench, headed by Chief Justice of India K.G. Balakrishnan, will on Friday deliver the keenly awaited judgement in the dispute between Mukesh Ambani-owned Reliance Industries Ltd (RIL) and Anil Ambani's Reliance Natural Resources Ltd (RNRL). At stake is the supply, for 17 years, of natural gas produced by RIL's block in the Krishna-Godavari basin. The dispute began after the 2005 division of assets of RIL between the two brothers following the death of their father Dhirubhai Ambani. It turned into a legal challenge in November 2006 in the Bombay high court, which ruled in June 2009 that RIL should honour the family agreement struck in 2005 to supply 28 million standard cu. m per day of gas at $2.34 per million British thermal unit for 17 years to RNRL. The battle then moved to the Supreme Court where RNRL sought the court's intervention for the immediate supply of gas; RIL in its affidavit opposed this, stating that the price sought by RNRL is 44% lower than that mandated by the government and that it could not supply gas at a price not approved by the government and to a user not listed in the country's gas utilization policy. The judgement will hopefully resolve the biggest corporate battle fought in the country.

5. Gas dispute between Ambanis

Vipin Arora (2009)First we start with Anil D Ambani- the name add up to 28 which is the worst series to have ones name. The people having names in this number, they will face only difficulties and rivalries. But his pyramid no 96 represents this number is formed by number 9 of Mars and 6 of Venus. People with names in this number are blessed with boldness, luxurious life and great knowledge. All their plans will succeed. They have the magnetic power to attract others through speech and arts.

Now we know that Mr. Anil D Ambani is blessed with boldness he is out spoken he is having one of the most luxurious life and he makes sure that all his plans succeed no matter what happens (even if he has to take support of politicians for settling gas dispute or family settlement).He is facing litigation and rivalries with his elder brother and the younger brother is fighting it out right from the Supreme Court to the parliament house & even in the AGMs of his company.

Read more: http://www.articlesbase.com/politics-articles/gas-dispute-between-ambanis-1166506.html#ixzz0nInk28rv

Research Methodology

Method is a way of doing something and methodology is a set of methods used in a particular area of activity. The research methodology employed in the research is as given by Philip Kotler.

Developing the problems and research objective

Developing the information sources.

Collecting and analyzing the information

Presenting the information

Research problem

implication of ambani brothers dispute for share holders

Method of Data Collection

The next step of research methodology is data collection. It can be done through secondary techniques. In this study both the techniques are used to collect the data.

SECONDARY DATA

For secondary data I have referred journals, magazines and Internet.

Study of various news in the related fields.

Reports on various results.

EFFECTS ON SHAREHOLDERS

Shareholding Pattern

Particular

no. of shares(Mn)

%

Foreign

720.52

(22.0%)

Domestic

343.20

(10.5%)

Non Promoter Corporate Holding

151.47

(4.6%)

Promoters

1,463.92

(44.8%)

Public &others

585.77

(18.0%)

Total

3,270.37

(100%)

Key ratios

 Ratios

Trailing Numbers

P/E (TTM)(x)

20.36

P/BV (TTM)(x)

2.58

ROE (%)

15.7

ROCE (%)

13.2

EV/ EVBIDTA (x)

11.49

Dividend Yield (%)

0.6

http://www.indiainfoline.com/Markets/Company/Reliance-Industries-Ltd/500325

Key dates in Ambani brothers' dispute

The Supreme Court has issued its ruling in the gas-pricing dispute between the billionaire Ambani brothers. The fiercest corporate battle till date had rattled investors and raised concerns over the influence of powerful businesses on government policy.

Following is a timeline of key dates in the Ambani rift.

July 2002: Dhirubhai Ambani, a school teacher's son and founder of the Reliance business empire, dies. Mukesh Ambani becomes chairman and managing director of Reliance Industries Ltd, and Anil Ambani is made vice-chairman.

November 2004: Feud between the brothers becomes public.

June 2005: Family reaches a settlement to split the Reliance group in a deal brokered by their homemaker mother, Kokilaben.

2006: Formal split takes place, with Mukesh taking control of flagship Reliance Industries, with interests in petrochemicals, oil and gas exploration, refining and textiles. He has since launched a retail venture. The Anil Dhirubhai Ambani Group gets telecom, power, entertainment and financial services. The Group includes Reliance Communications Ltd, Reliance Infrastructure Ltd, Reliance Capital Ltd, Reliance Natural Resources Ltd (RNRL) and Reliance Power Ltd.

July 2008: Reliance Communications calls off merger talks with South Africa's MTN after Mukesh makes a claim on the shares of Anil's telecom firm.

June 15, 2009: Mumbai High Court directs Reliance Industries and Reliance Natural to enter a gas supply agreement within a month.

July 1, 2009: Reliance Industries says will appeal to the Supreme Court against High Court ruling.

July 19, 2009: Indian government steps into the legal dispute, filing petition in the Supreme Court saying the gas is its property.

July 20, 2009: The Supreme Court does not exclude the government from the proceedings. Court says will hear case on September. 1.

August. 28, 2009: The Supreme Court website lists case hearing on October 20.

October 11, 2009: Following a visit to holy shrines in the Himalayas, Anil Ambani offers an olive branch to his elder brother and makes an impassioned call to end the impasse. Reliance Industries welcomes the move, but says the dispute under litigation is not merely a family matter and hoped "any overtures for rapprochement are in no way related to the ongoing hearing of the case".

October 20, 2009: A three-member bench, including Chief Justice KG Balakrishnan, of the Supreme Court begins hearing arguments in the case.

November 4, 2009: The hearing is disrupted when a judge withdraws, citing potential conflict of interest as his daughter worked at a firm that was a consultant to Reliance Industries.

November 5, 2009: A new three-member bench that also includes the Chief Justice begins hearing arguments from scratch.

November 5-December 18, 2009: Reliance Industries argues a private deal between the Ambani brothers cannot take precedence over government policy, which determines who can receive gas and at what price. Reliance Natural, which claims otherwise, says the government will not suffer a loss even if Reliance Industries sells it the gas at the disputed price. The government stresses it does not favour either side in the dispute.

December 18, 2009: Court finishes hearing the case and reserves judgment.

MARKET ANALYSIS

Markets corrected for nearly 3 per cent during the week, on the back of appreciating rupee against Dollar, hitting hard to the export-oriented companies, and telecom sector is under worries about increased tariff competition.

During the week Sensex lost 491 points and closed at 16642 against last week end's close. Nifty lost 138 points and closed at 4945. Capital inflows Stood at Rs 1939 crore in the first seven days of Oct.

During the week BSE Mid-cap index was flat, while Small-cap index lost 2.8 per cent. BSE FMCG and the Consumer Durables indices were the top gainers by 6.2 per cent and 5.6 per cent respectively.

Going Forward It is expected that, Sep Quarter results will dictate the trend. Liquidity situation seems to be causing concerns among investors as several companies are expected to raise funds through IPO and QIP in the calendar year. Investors will keenly watch Q2 results and Industrial Production numbers for Aug 2009, which will be announced on Monday.

Corporate

Reliance Industries (RIL) has announced a bonus share for every share held by the investor. The company maintained its dividend for the fiscal year ended Mar 2009 at Rs 13 per share.

On this move the stock is expected to gain on Thursday. Reliance listed in 1978, has so far issued bonus shares thrice in its history.

The legal despite between the two brothers has forcing to reduce earnings forecast for Reliance Industries on account of adverse court ruling could force the RIL to sell gas at a sharply lower price than originally forecast.

RIL itself is accepting that delay in selling gas has been affecting its plans to repay the loans and reduce its interest expenses. The Company planned to 8.8 billion dollars in developing the fields in Krishna Godavari basin, of which it has already spent about 5.8 billion dollars.

BSNL, MTNL may buy 46 per cent in Kuwait telecom

Zain's has received an official letter stating that BSNL and MTNL are interested to participate in the proposal for buying up to 46 per cent of Zain's shares from its one of the largest share holder Kharafi Group.

According to the statement, participation in the purchase of stake by BSNL and MTNL will depend on the due diligence and Indian Governments approval. The deal is valued at 13.7 billion dollars.

India Inc on a fund raising spree

Tata Motors raised 750 million dollars (about Rs 3,600 crore) through global depository issues (GDRs) and convertible bonds to pay off part of the debt it incurred while acquiring UK's iconic car brands Jaguar and Land Rover.

The issue comprised GDRs worth 375 million dollars and an equal amount in convertible bonds. Tata Motors had taken a bridge loan of 3 billion dollars in 2008 to buy the two brands. It had repaid a major part of the loan through a debt and stake sale so far.

The latest equity dilution will shrink promoter equity in the company by 6 per cent, post the GDRs. That would go up to 10 per cent if all the FCCBs are converted. The country's largest engineering & construction firm Larsen & Toubro (L&T), too, raised 600 million dollars through sale of shares and bonds to institutional investors.

Economy

Wholesale Price Index declines to 0.7 per cent

RISE in annual inflation as measured by the Wholesale Price Index (WPI) for the week ended Sep 26 was at 0.7 per cent, marginally lower than previous week's level of 0.83 per cent as the food items became cheaper.

Annual inflation for food articles in the week was at 15.45 per cent, a slower rise than the previous week's 16.3 per cent. Various food items including vegetables and fruits became cheaper over the week.

According to Agri analysts, fall in prices of vegetables on the back of strong revival in monsoon rains in month of Jul and Sep 2009.

Economists are also expecting inflation in manufactured items and fuel items to gather further pace with the recovery in the economy gathering momentum. While annual inflation for manufactured products was at 0.48 per cent fuel items showed a negative inflation of -7.91 per cent.

http://news.oneindia.in/2009/10/12/market-analysis-weekly-roundup-till-oct-10.html

EFFECT ON SHARES

Reliance, tech push Nifty to 5k

Buying in technology, telecom, oil & gas exploration, realty, select banking and power stocks raised Nifty up towards the 5,000 mark with the all sectoral indices being green.

In the ADAG (Anil Dhirubhai Ambani Group) pack, RNRL increased by 5 per cent, Reliance Infrastructure increased by 3 per cent while Reliance Power, Reliance Communication and Reliance Capital gained over 1.5 per cent.

Mukesh Ambani Group companies like Reliance Industries increased by 1.5 per cent and Reliance Industrial Infrastructure shot up by 1.8 per cent. Meanwhile, each of TCS, Wipro, Infosys and HCL Tech gained 1.5 per cent. Among other largecaps, SBI, ONGC, Bharti, DLF and Maruti increased by 1 to 2 per cent. However, Hero Honda, GAIL, HDFC Bank, Tata Power and Tata Motors lost.

Anil Ambani's effort to reconcile raises RIL

Anil Ambani's effort to reconcile with big brother Mukesh, Reliance Industries, Reliance Communication, Infosys, Reliance Infrastructure, Reliance Power made a good start with the Sensex up at 16,72.

Infosys, Bharti Airtel, Wipro, TCS, RNRL, DLF and Tata Motors, Hotel Leela, GIC Housing and Indian Hotels were the gainers. However, ITC, HDFC Bank, HUL, Ranbaxy Labs and Hero Honda lost.Exide Industries rose by 4 per cent. Vishal Retail increased by 6 per cent after seeing selling pressure in the last few sessions. Indiabulls Retail dipped by 1.5 on the first day of subscription of Indiabulls Power IPO.

CONCLUSION

Sons of legendary industrialist Dhirbuhai Ambani who started his career as a petrol station attendant in Yemen and later founded Reliance Industries, Mukesh and Anil split the business empire between them in June 2005 - then worth .

While Mukesh controls shares worth 55.81 billion dollars, Anil owns shares worth 35.6 billion dollars in their respective groups, whose combined worth stands at just over 170 billion dollars.

The wealth of the two brothers as also their group companies are based on the information available on the Bombay Stock Exchange and the closing price of the group companies

The Indian stock market boom has made the Ambani brothers arguably the richest in the world if one clubs the fortunes of Mukesh and Anil, which at USD 91.41 billion is far ahead of even the Walton family of Wal-Mart

http://www.financialexpress.com/news/ambani-brothers-worlds-richest/226423/

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