Mukesh, DE Shaw close to deal

Joint Venture To Offer Services Like Energy, Carbon Trading & Derivatives

THE Mukesh Dhirubhai Ambani group is close to signing an equal joint venture agreement with global private equity and hedge fund company DE Shaw to enter the financial services sector, two persons familiar with the development told ET.
    Reliance Industries Ltd, or RIL, the group's flagship, recently made a spectacular entry into the telecommunications sector after annulment of a non-compete agreement between Mukesh and younger brother Anil. Financial services was included in the non-compete, signed in 2006, when Reliance was split into two groups headed by the siblings.
    The joint venture will help the MDA group offer services like energy and carbon trading as well as derivatives linked to these, areas in which DE Shaw has expertise, one of the persons said. It will also enter more conventional sectors such as private equity, mutual funds, and other security-linked offerings, the other person said.
    Neither of the two sources specified the size of the initial investment in the joint venture, or whether it will be established under Reliance Industries or held directly by Mr Ambani. The deal signing is imminent, possibly as early as this week, they said.
    Mukesh Ambani is on the controlling board of DE Shaw India, an entity that oversees the operations here. The negotiations are being handled by Manoj Modi, a close lieutenant of Mr Ambani, one of the persons said.
    He said the joint venture may eventually seek a banking licence in India, something which will almost certainly be denied to RIL, India's largest private sector company, if it goes solo.
    Earlier this year, the government had said it would reconsider norms for issuing banking licenses but the Reserve Bank of India has indicated that it would not allow industrial houses such as the Tatas or RIL to enter this sector. Whether even a joint venture will get such a license is also debatable. Financial services logical for RIL
HOWEVER, the JV is unlikely to encounter too many problems if it sets up a non-banking finance company, or NBFC, that can offer an array of services ranging from broking to investment banking.
    Many business groups such as the Tatas and the Aditya Birla group house an NBFC in their ranks. Unlike banks, NBFCs cannot offer cheque facility to individuals and are, therefore, more lightly regulated than banks.
    Both DE Shaw's New Yorkbased spokesman, Paul Welsch, and the Reliance Industries' spokesman declined to comment.
    DE Shaw specialises in debt and equity financing to distressed companies and start-ups, which may also be of interest to RIL, an analyst who asked not to be named said. The firm was founded by David E Shaw in 1988. Dr Shaw is currently the chief scientific officer of DE Shaw Research LLC and is a an Adjunct Professor at Columbia Medical School, according to the firm's website.
    Financial services was part of the Reliance group prior to the split between the brothers in 2006. After RIL forayed into retail over three years ago, financial services was seen as a logical next step for the group.
    Anil Ambani-controlled Reliance Capital, which was part of the undivided RIL, is in businesses such as brokerage, mutual funds, and has a private equity arm.
    ET had earlier reported that RIL could enter the financial services sector. The company was most likely to start with insurance and stock broking, according to discussions at a company board meeting held earlier this month.
    RIL also recently acquired 95% stake in a company that won licences to offer high-speed wireless access all over India. And at the company AGM, Mr Ambani had said it would enter the power sector. The scrapping of the noncompete agreement on May 23 unshackled RIL, allowing it to enter businesses such telecom, financial services, and energy, with the exception of gas-based power plants. The company has committed an investment of $5 billion to its telecom foray, and has sufficient surplus cash to make a second similar investment of that degree, the analyst said.
    While most of the group's investments are channelled through RIL, Mr Ambani has invested in a personal capacity in a company called Reliance Life Sciences and also owns a stake in a special economic zone (SEZ) near Mumbai. In the past, Reliance Infocomm, the new economy arm of the undivided RIL, was jointly owned by Mr Ambani and Reliance. That company was later transferred to Anil and is now known as Reliance Communications.