India’s billionaire Ambani brothers are struggling to rediscover their Midas touch after a year in which they have been battered by investigations and investor skepticism.
Mukesh and Anil Ambani took over their father Dhirubhai’s conglomerate after his death in 2002, but an acrimonious five-year scrap over the assets forced their mother to intervene and break the empire into two.
Elder brother Mukesh heads Reliance Industries, with assets in mostly the energy and petrochemicals sector while Anil created the Anil Dhirubhai Ambani group (ADAG), from its telecom, finance and utilities interests.
Shares in Mukesh’s firm hit a two-year low last week and are down 20 percent this year, while shares have more than halved in Anil’s flagship Reliance Communication (RCom) over the last year.
“Once ‘Dhiru’ shares were in almost every investor’s portfolio,” said Hemen Kapadia, chief executive of investment advisory firm Chart Pundit, using the nickname brokers gave the Reliance Industries stock under the Ambanis’ father.
“But Reliance stocks have lost some of their gloss,” he said.
Mukesh’s Fortune Global 500 firm has been dragged down mostly by concerns about slowing gas output from its fields off India’s east coast, raising valuation worries for other still-to-be-explored assets.
The group had been expected to get a major boost from a US$7.2-billion deal with British energy giant BP to explore the Indian company’s existing and uncharted deepwater oil and gas fields.
However, with gas output falling “the potential valuations for Reliance’s future oil reserves ... is evaporating,” said an oil analyst with a Mumbai-based firm, who declined to be named.
Another headache comes as the energy giant finds itself at the center of controversy after the national auditor claimed that Indian Ministry of Petroleum and Natural Gas favored Reliance as it developed the KG-D6 field.
Anil, meanwhile, saw ADAG removed from the leading Sensex index on the Bombay Stock Exchange last week, just as he was trying to revive its fortunes.
The group has faced headwinds since April after federal police quizzed the tycoon and other -executives as part of a probe into one of India’s biggest graft scandals, involving the awarding of telecom licenses in 2008.
Three senior executives from Reliance Telecom are on remand in prison facing charges of deception, forgery and criminal conspiracy in the high-profile case.
Anil has for more than a year been trying to find a foreign investor to buy a 26 percent stake in RCom, which would help lower its ballooning debt of US$7.18 billion.
RCom, India’s second-biggest mobile phone firm, with a 16.5 percent share, has recorded seven straight quarterly falls in profit, even though India is the world’s fastest growing mobile phone market, with 827 million subscribers at the end of April, a 35 percent jump year-on-year. Competition is intense and margins are falling.
To add insult to injury, the Tata Group became India’s biggest in terms of market capitalization last week, beating the combined value of the brothers’ companies.
The salt-to-steel Tata Group was worth 4.32 trillion rupees (US$96 billion) while the combined worth of the two Ambani brothers groups was 3.46 trillion rupees.
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