Will Reliance family smile again?

The acceptance by Reliance Energy (REL), of the right claimed by RIL to nominate, so long as it held 26 per cent of it, both the chairman and the V-C of REL, followed by Mukesh Ambani annulling his 12 per cent stake granted through sweat equity, in Reliance Infocomm, are steps that are hopefully indicative of a possible rapproachment between warring brothers.The buyback is supposed to be for restoring investor confidence. RIL has huge capital requirements for all its businesses. Its petroleum business needs to establish a retail outlet for its petro products. Its telecom business needs to grow. The huge gas finds in AP and elsewhere have to be exploited, and a gas pipeline network has to be built. Not to mention capital requirements at REL, which, because of political undertones, has been another bone of contention. Unless the underlying issues are squarely dealt with, a buyback could be only a palliative. More so since it would divert capital from projects where it would earn 20 per cent or more on capital, to an asset where the dividend yield would be under 3 per cent. So a buyback would be value decretive for all shareholders, including the minority ones. The only other buyback offered by RIL didnt get a response. Far better to have issues that have caused friction, out of the way, as happened last week. Amongst issues the board would have to deliberate upon would be to finalise, and to announce, the terms upon which investments of Rs 8,100 crore have been made in preference shares of Reliance Infocomm. That the board is acting in the interests of minority shareholders would be a measure of investor confidence building.