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2.34 out !…4.20 in ! as Supreme Court rules in favour of RIL and Mukesh Ambani and not RNRL and Brother Anil Ambani…Feel Sad for does RNRL now stand for ‘Rahe Na Rahe Ltd’!…I don’t think so

I’ve no bias… but feel sad for Anil Ambani…. I’m with him on this one….. Supreme Court gave a split verdict today in the RIL v/s RNRL Gas Pricing embroglio in favour of RIL

So now 2.34 is out and 4.20 is in !… One perspective is that RIL and the Government have done a 4.20 on this one!

In 2005 when the Reliance Group was split between the Ambani Brothers a MOU was signed between the brothers and blessed by their Mother too… It prescribed that RNRL would be supplied 28 million mmbtu gas  daily by RIL at a price of US $ 2.34/mmbtu….. Anil agreed to the split valuations which included this arrangement too…. He went ahead and got his company RNRL to enter into an agreement with his ambitious baby, Reliance Power, to in turn supply this Gas from RIL for the upcoming 7.4 GW Dadri Power Plant which is slated to be the biggest Gas based Power Plant in Asia

RNRL went to court as RIL refused to honour this MOU citing that Gas was the National Property and they were merely Contractors and the Government owned the Gas and reserved the right to allocate this Gas and also approve the Pricing for this…. The New Pricing Benchmark became US $ 4.20/mmbtu

High Court ruled in favour of RNRL and said that the MOU should be honoured…. RIL went to the Apex Court, the Supreme Court….. Today the three judge bench gave a 2-1 Verdict in favour of RIL and the Government, overruling the High Court Order…. their view is that

  • This Gas is a National Resource and the Government is the Owner
  • The Production Sharing Contract (PSC) between RIL and the Government supersedes all other agreements, including the MOU between the brothers
  • The MOU itself is not a legally binding document, but can be used for inspiration in future negotiations for gas supply between RIL and RNRL… These negotiations must be concluded inside six weeks and the Company law Board should be approached to approve the same

Feel Sad that RNRL and Anil lost out here…. simply because I feel strongly as below

  • This issue must be viewed with the mindset of ‘Substance over Form’… just like auditors are trained to do… also it should be viewed,like the Painter Hussain controversy, with a mindset of looking at the ‘intention’ behind creating this controversy
  • The MOU was created in 2005 with this Price of US $ 2.34/mmbtu which was the benchmark then as it was a NTPC tender price….. Why was no noise created then ! ?…. Even if the MOU was secret, the price was not!…. Clearly as the Price of Gas began rising, RIL attempted to wriggle out of this committment to supply gas to RNRL at US $ 2.34/mmtu
  • It was only in October 2007 that the Empowered Group of Ministers (EGOM) had arrived at a Formula for Gas Pricing
  • Mukesh Ambani could easily have honoured this MOU committment… it was blessed by the Mother… and in Mother India, the word of Mother is that of God !.… apparently the boiling intensity of emotions with his brother, Anil Ambani, prompted him to decide not to supply the gas at all….. So RIL chose to default citing that Government was the authority on allocation and pricing of Gas…. clearly government machinery was being misused and the government merely became a front… moot question arises… was the Government playing favourites or truly had the National Interest in mind !?.… the answer will stare at you in the face when you search history and discover that a top RIL executive was arrested because he was caught with confidential government documents…. apparently he was drafting/suggesting/amending a Union Cabinet Meeting Agenda for a Meeting to be held!…. also the current Petroleum Minister and the late Dhirubhai Ambani were great friends from their youth…. read the banned ‘Prince of Polyester’ by Hamish Mcdonald to gauge how close!…. Anil Ambani has already emotionally made these accusations and had rightly questioned as to why the Government has not withdrawn the PSC with RIL if they felt that it has been violated by the MOU !

So what will happen now….. RNRL has already lost significant value on the Stock Exchanges today…dropping from Rs 70 levels towrds Rs 50…. RIL has regained lost ground and is up marginally at Rs 1040 levels

If Anil Ambani had agreed to the Reliance Group Split in 2005 based on the Valuations on supply of 28 million mmbtu/day at a Gas Pricing of US $ 2.34/mmbtu, he is entitled to now feel aggrreived like all his shareholders too….. Clearly he should seek adequate compensation from RIL on behalf of all his shareholders…. one way is that the brothers agree to sell RNRL to RIL at price levels near Rs 100…. because the split may have then been done at a more favourable and liberal ratio for ADAG Companies… in simple words, shareholders of RIL would have received more shares in ADAG Companies in the split than they actually did if this Gas Supply and Pricing was not to be considered

There clearly is a huge vacuum in Independent Thinking… Expert after Expert on all Channels today are simply parroting similar views…. in favour of RIL Share Price and sounding the death knell for ADAG Companies

Mark my word, Anil has his father’s courage and aggression in him…. he will rise again… just pray he creates a right set of people around him, than he has now, in all his business

As I end this Blog, just heard a very gracious Anil Ambani stating that he will abide by the Supreme Court Decision and not file a review petition… he was all praise for the SC for upholding the formation of the MOU and stating that the MOU can be an inspiration for looking at the scheme of arrangement and renegotiating…. he thanked his wife, Tina and both his sons, Anmol and Anshul, for the support… thanked his 11 million shareholder body, the largest in the world, his over 150000 employees and the media too

Anil Ambani looks forward to an expeditious renegotiation with RIL

However RIL is voicing doubts over the availability of gas itself to supply to RNRL…. creates doubts on whether any renegotiation will take place, as directed by the Supreme Court today, between RIL and RNRL…. What will RIL negotiate !? if they continue to assert that they don’t have any gas to supply to RNRL !… as Government is directing the allocation to specific companies in the priority sectors of Fertilisers and Power

Clearly RIL and Mukesh Ambani wants  to sever the umbilical cord with ADAG Companies and Anil Ambani permanently…. perhaps Anil and his Companies would be better off this way !

So where does all this leave us on the Share Price performance of RIL and ADAG Companies

RIL will register an EPS of over Rs 80 FY 12 on full Gas production … at 15 multiple that’s a Share Price at Rs 1200 levels… its’s currently at Rs 1040… so there appears little downside from here

Re Power is struggling to stay above Rs 140…. With a  question mark on Gas supplies from RIL and New Pricing, it would be advisable to reduce exposure

On RNRL at Rs 53 levels, I’m a bit of a contrarion here….. I don’t think it is, as joked, “Rahe Na Rahe Ltd”!…. It’s more than just a Trading Company in Gas… With ex Gujarat Ambuja Cement CFO, Ajit Singhvi,on board as Vice Chairman and diversification plans on the anvil, I would review it strongly to seek more clarity  on the business model and impact of changing dynamics…. in simple words, if you’re holding RNRL, defer a decision to sell out at current levels… unless you’re a conservative investor… in which case RNRL should never have been in your portfolio, unless you’re an original Allottee in the Reliance Group 2005 Demerger by lieu of your shareholding in RIL

Also, if you are not in sync with Anil Ambani’s business aggression, ambition, acumen, management coterie, risk assuming abilities and strategies he adopts to scale up and move ahead then it’s wise to not marry any ADAG Companies.. and if you have, then exit the marriage asap

On a Macro front,Sensex dropped @ 240 points to close @ 16750 levels and Nifty dropped below 5000, only to recover to barely close over it… Greece is bigger then Greece!


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