Reliance Industries announces a tie-up with DE Shaw group to build financial services business in India

On a quiet Sunday morning, while the country was more excited about cricket, Reliance Industries Limited (RIL) announced plans for joint venture with the D. E. Shaw group “to build a leading financial services business in India”. D. E. Shaw group is a global investment and technology development firm with over $20 billion in aggregate investment capital as of March 1, 2011, but there is a big question about how and when this joint venture will take off. 

Reliance Industries is under investigation by the Securities and Exchange Board of India (SEBI) in connection with a 2007 matter when RIL sold 4.1% of the equity of Reliance Petroleum in an open market transaction, earning huge profits. Reliance Petroleum has since been merged and does not exist. Media reports have suggest that SEBI Chairman C B Bhave, who rejected RIL’s request to file consent proceedings had been looking to make an example out of RIL by imposing a penalty in the region Rs500 crore for insider trading, and probably other restrictions as well. However, there is now a new chairman at SEBI and there is some speculation that things may be different under U K Sinha’s leadership. 

Our queries to the top brass of SEBI and the media agency of Reliance Industries (NeUcom) about the implications of the insider trading investigation on the joint venture’s plans did not elicit a response at the time of publication this piece.

According to a press release issued on behalf of Reliance Industries, the “joint venture will incorporate the D. E. Shaw group’s investment and technology expertise with Reliance’s operational knowledge and extensive presence across India to offer a comprehensive array of financial services to the Indian marketplace”. It quotes Reliance Chairman Mukesh Ambani  saying, “Reliance is delighted to partner with the D.E. Shaw group in the financial services domain.  The D. E. Shaw group is a natural partner for Reliance. Together, we look forward to participating in the growing Indian financial services sector”.

Lou Salkind, a member of the D. E. Shaw group’s Executive Committee is quoted saying, “We are excited about this new partnership with Reliance.  We have had a long-term commitment to Asia generally and to India specifically, having begun our operations in the country fifteen years ago”. He is also quoted as saying, “We believe this joint venture allows us to apply to the Indian markets our historical success in investment management and market-making, and that strengthening our presence in India and deepening our relationship with Reliance benefits our business globally.”

Anil Chawla, a Managing Director and head of the D. E. Shaw group’s private equity activities in India is quoted in the release saying, “This joint venture will draw upon the core competencies of both firms to develop a platform that can serve the growing needs of Indian companies and individuals.” 

Reliance Industries Limited (RIL) is India’s largest private sector with a turnover of  Rs 2,00,400 crore and a net profit of  Rs 16,236 crore (US$ 3.6 billion) as of March 31, 2010.

The D. E. Shaw group has been in India since 1996, initially focusing on global information technology.  It now has over 700 employees in its Hyderabad, Gurgaon (Delhi), and Mumbai offices.