| Empire in Turmoil Why the market panicked when the foundation of Reliance shook  | | PICTURE SPEAK | |  | | THEN: Dhirubhai with Anil and Mukesh | | Last week as Mukesh Ambani's soundbites on ownership issues echoed on Dalal Street, the Reliance counters saw heightened trading worth Rs 200 crore. As the RIL share price dropped from Rs 545 to Rs 527, Rs 3,400 crore of market capitalisation was shaved off. Interestingly, among the losers were the Ambanis who notionally lost over Rs 1,500 crore. Mercifully the markets calmed down but nervousness persists. The tremors are justifiable. Reliance Industries is not just any other company. This September its sales touched Rs 43,680 crore and net profit was Rs 3,189 crore. Its annual sales are in the region of Rs 90,000 crore, and daily sales are around Rs 240 crore with profit earnings of Rs 18 crore a day. RIL is virtually a behemoth that not only provides livelihood to over 80,000 employees but also accounts for over 3 per cent of the nation's GDP and 10 per cent of the revenue collected. Its empire stretches from well heads to plug points, thanks to its ownership of four mega corporations: Reliance Energy, Reliance Capital, Indian Petrochemicals and the telecom juggernaut Reliance Infocomm valued at Rs 45,000 crore. The devil is in the details. The ownership is vested not in individuals but in a maze of companies. Thanks to an obscurantist taxation system and a resource-scarce economy, Indian companies are rarely owned by a single entity and the ownership rests with investment companies owned by families. RIL is no exception to Indian practices. It is owned by a clutch of 14 companies which in turn are owned by a complex web of investment outfits, the control of which extends to over 1,400 entities. Unravelling this maze could be both legally complex and time consuming. In an economy where lending against shares was seen as sinful, promoters had to create vehicles which fuelled their growth ambitions. Therefore, divisions in Indian companies are mostly an issue of control. Much of the corporate landscape operates on the principle that possession (in this case management control) is nine parts of law. Dhirubhai Ambani's empire is also constructed on a similar architecture and typically of the tycoon its complexity is unparalleled primarily because of its size. Unlike other business scions who inherited empires, the Ambani brothers have been part of Reliance's growth. While Mukesh joined the business in 1981 when RIL turnover was Rs 300 crore, Anil joined the business two years later when sales crossed Rs 500 crore. In a sense the two brothers are as much architects of Reliance's complexities as their father was. Any physical change in the structure would affect the highly integrated business. RIL, for instance, has an internal synergy with IPCL. It owns stakes in gas fields which would be used to feed the power plants of Reliance Energy. So when many discussed the pitfalls of a potential split, investment bankers and legal pundits wondered if that was possible at all. Every part of the Reliance Group is interconnected like a giant server where RIL acts as the motherboard. There is speculation about an imminent settlement. The options are negotiable. The timing, though, is dependent on events.
-By Shankkar Aiyar | 
