Billionaire Ambani brothers will share a fibre optic network for their rival telecoms companies, their first business tie-up since ending a long-running feud three years ago.
Reliance Industries, controlled by Mukesh Ambani, India's richest person, will pay 12 billion rupees to younger brother Anil Ambani's Reliance Communications for use of its fibre optic network.
The companies said on Tuesday they could co-operate further in future and the announcement bolstered their share prices.
Reliance Industries, whose main business is petrochemicals, made a dramatic return to telecoms in 2010 by becoming the only company to gain nationwide 4G airwaves. While it has yet to start services, it is widely expected to begin operations in parts of India later this year.
Debt-laden Reliance Communications, India's third-largest cellular carrier by users, was hived off from the combined Reliance empire after the brothers split up the family businesses in 2005 in a deal brokered by their mother.
Under the terms of Tuesday's fibre optic deal, Reliance Industries will pay "one time indefeasible right to use (IRU) fees for sharing RCOM's nationwide inter-city fibre optic network infrastructure," the companies said.
Reliance Communications shares jumped as much as 17 percent after the news before closing 11 percent higher. Other Anil Ambani group stocks also gained. Reliance Industries' stock closed up 2 percent.
More co-operation
Further details on the tie-up were not immediately available, but the companies indicated more cooperation was possible. Media reports have long speculated that Reliance Industries would lease space on Reliance Communications' tower network or buy an equity stake in the tower business.
"This agreement is the first in an intended comprehensive framework of business co-operation ... for optimal utilisation of the existing and future infrastructure of both companies on reciprocal basis, including inter alia, inter-city fibre, intra-city fibre, towers and related assets," the companies said.
Reliance Communications is the most leveraged among Indian cellular carriers with net debt of nearly $7 billion, or more than five times its annualised operating profit. The company has been looking to sell assets to cut its debt load but has fallen short in several attempts.
"It is definitely a relief for Reliance Communications, and a relief coming to the group after a long, long time even though not sufficiently large," said Jagannadham Thunuguntla, strategist at SMC Global Securities in New Delhi.
Tuesday's deal will help Reliance Jio Infocomm "reach the market faster," said Deven Choksey, managing director of K.R. Choksey Securities in Mumbai.
According to Forbes, Mukesh Ambani is worth $21.5 billion, while Anil Ambani is worth $5.2 billion.
Dhirubhai Ambani's death in 2002 led to a power struggle between his two sons that split the Reliance empire. Mukesh ended up with the core energy business, and Anil ended up with the telecoms, financial services and power businesses.
Copyright Thomson Reuters 2013