WHAT IS MUKESH AMBANI up to in America? As he derisks his energy business in India and looks for new technologies and markets, he may be targeting the U.S. for future expansion. Despite Ambani’s repeated attempts at going global, such as the 2009 bid to buy out the Rotterdam-based chemicals company LyondellBasell, his interests have remained predominantly Indian. This could change as he invests in non-oil energy assets such as shale and in businesses with promising technology, and primes investors in the world’s largest economy.
Focussing on the U.S. would help Reliance Industries (ranked 2 on the Fortune India 500 list) sustain its edge in energy, its core earner. According to a 2011 BP study, natural gas consumption in the Asia Pacific region will grow 38% from 493.4 million tonnes of oil equivalent (MTOE) in 2010 to 657.5 MTOE in 2015. One MTOE equals 7.33 barrels of oil equivalent (BOE), and a BOE is the amount of any fuel required to produce the same energy as a barrel of oil. Between 2010 and 2015, gas production is likely to grow 25%, from 423.4 MTOE to 529.4 MTOE.
An international presence would enable RIL to cater better to rising demand. “They’re heavily exposed to India’s emerging economy, where there’s high but volatile growth,” says Pradip Shah, chairman of IndAsia Fund Advisors, a private equity firm. “Entering the U.S. market would balance their portfolio, since it’s a mature market where growth is lower but stable.” That could explain why Ambani chose the U.S. over faster growing China.
Another strong signal of Ambani’s interest in the U.S. is his appointment in March to the Bank of America board. The bank played a key role in RIL’s $1.5 billion (Rs 6,722crore) bond issue in October 2010, and a $1 billion loan in July of that year.
The bond proceeds were used to partly pay for stakes in U.S. shale gas ventures totalling almost $3.5 billion. These include a 45% stake in the Eagle Ford field in southern Texas, and a $1.7 billion joint venture with Atlas Energy, L.P., which has a field in the northeastern U.S. Shale gas extraction technology is still evolving, and sources in RIL say that’s where Ambani’s real interests lie. RIL spokesperson Manoj Warrier, however, did not respond to Fortune India’s questions.
The $7.2 billion proceeds from the recent sale of a 30% stake in 23 oil and gas production contracts to BP adds to RIL’s free cash (as of December 2010) of nearly $8 billion—apotential war chest for future acquisitions.
“It appears as though Ambani is crossing the border,” says K.K. Mital, fund manager at Globe Capital Management. “Exposure to U.S. markets may open the gates for the group in the future. RIL is always looking for opportunities, and this means an expansion of opportunities to invest in that economy.”
