RIL-DE Shaw JV Reworks Biz Plan

Venture to focus on proprietary trading; change triggered by delay in capital infusion

The joint venture between India's largest company Reliance Industries (RIL) and private fund DE Shaw is likely to go for a midcourse correction, less than a year after both the companies announced their JV. Reliance and DE Shaw, in March last year, announced the formation of a joint venture for financial services business. After its bigticket investments in telecom and retail, the market expected Reliance to make a big splash in the financial services business. 

Both the companies, at the time when the JV was formed, had announced plans to float an NBFC, private equity and investment banking ventures through this JV, but the slow growth in all these three sectors and a delay in capital infusion has forced both the partners to put these plans on hold. The JV will now primarily focus on proprietary trading business, with a focus on crude and forex trading, said a person associated with this JV, but not authorised to speak on the matter. It is understood that the company has brought in David Gibson who is managing director of its New York office to head the India operations. 
The joint private equity fund might also take a back seat, as both the companies feel the market is over-crowded. The delay in fund infusion is believed to be one of the reasons for this delay. Reliance declined to comment on the issue and DE Shaw did not respond to the email query sent by ET. "It's not a market that a new player can easily replicate; those who are running business like NBFCs, are largely promoter-driven; further, the new regulations in the sector might deter new players from entering the market," said Rajeev Suneja, transaction advisories, E&Y. Suneja was commenting on the industry per se and not on the RIL-DE Shaw alliance. DE Shaw, founded by the eponymous Columbia University computer science professor in 1988, manages $20 billion in investments. It has been operating in India since 1996 and employs 700 people in Hyderabad, Gurgaon and Mumbai. 
As a PE fund the company has invested in small- and mid-size companies in power and technology companies. The JV with RIL was meant to be its launch pad for expanding in India. RIL's attempts at entering the financial services sector have been rather unsuccessful; it had to call off its acquisition deal involving Bharti AXA, an insurance company. Analysts say that RIL, after its acquisition in media and telecom ventures, would want to go slow on the financial services business. Earlier this year, RIL had picked up a stake in Network18 Investments in a complex transaction that involved funding the media group to acquire a stake in Eenadu's news and general entertainment channels. 
The financial sector in the last one year has taken a beating due to the global financial crisis. Foreign banks have shut their divisions, and a few like Fidelity are planning to exit the India market. Analysts say the financial services market is profitable, but only if a company completely understands the business.