Anil Ambani: How the brother of India’s richest man is on the verge of bankruptcy
In Greek mythology, Icarus, son of the master craftsman Daedalus, put on wax wings to fly from Crete but his ambition led him too close to the Sun which melted his wings. It is an edifying tale often told of ambition and pride. Closer to home and much more lately, Anil Ambani’s current situation is yet another Icarus story. The youngest descendant of the Ambani clan, who received the brightest of the Reliance lot, is now facing personal bankruptcy proceedings.
Anil Ambani and his older brother Mukesh Ambani have been handed the reins of the Reliance companies, set up by tycoon Dhirubhai Ambani. The youngest son received the telecommunications business of the new era, as well as financial services and the energy branch. On the other hand, Mukesh Ambani inherited the petrochemical business.
The young Ambani brimming with potential with the telecommunications sector which has yet to explode had ambitious plans. He wanted his company to become the biggest player in telecommunications, electricity and infrastructure. But, that may be one of the reasons he finds himself in the current situation. Amit Tandon, Founder and Managing Director, Institutional Investors Advisor Services, told BusinessToday.In he was moving from company to company and there were gaps in execution. Tandon said that in many projects the cost was higher than expected with no return. And the debts kept piling up.
In 2018, the total debt of group companies stood at Rs 1.72 lakh crore. In 2019, Reliance Communications went to bankruptcy court with a debt of Rs 46,000 crore. RCom’s income fell to Rs 1,734 crore in FY20 from Rs 27,710 crore in FY10. The trajectory of most of the companies in the group has been the same. The power sector has seen unfinished projects, while Reliance Capital (RCap) has encountered lost opportunities. Reliance Naval and Engineering, the defense company is also in debt.
But it is in the face of the rise of older brother Mukesh Ambani who is not only the richest man in India, but also ranks in the top 10 richest in the world. Its fortunes have skyrocketed, especially since the launch of Reliance Jio. According to the latest valuation, Reliance Industries m-cap is around Rs 13.19 lakh crore. This year, Jio Platforms saw investments from financial and strategic investors amounting to Rs 1.52,056 crore. Facebook, Google, Silver Lake, Vista, General Atlantic, KKR, Mubadala, TPG, Abu Dhabi Investment Authority, Intel Capital and Qualcomm are some of the investors.
This contrasts with the businesses of Anil Ambani, which faced a series of challenges and obstacles. While some would have been caused by execution flaws, some appear to be bad timing. Here’s a look at how Anil Ambani slipped to the brink of bankruptcy:
- At the heart of the crisis is Reliance Communications which was handed over to Anil Ambani when the empire was split between the two brothers. In 2002, when RCom started up as Reliance Infocomm, the company switched to code division multiple access or CDMA, an emerging communications technology. It had a similar output to Global System for Mobile or GSM used by Airtel and Hutchison Max. But CDMA was limited to 2G and 3G technology. So when the landscape quickly shifted towards 4G and 5G, RCom found itself ill-equipped and lost. In 2008, when RCom received spectrum, its debt had already reached Rs 25,000 crore. Uninor, Aircel and other operators were also added to the competition. At the end of the second term of the UPA government, nearly Rs 2 lakh crore of projects were stuck after the 2G spectrum crisis.
- At the 2018 AGM, Anil Ambani announced that they had decided not to proceed in the telecommunications sector. “As we have exited the mobile industry, we will be monetizing our corporate operations at an appropriate stage. Reliance Realty will be the growth engine for the future of this company,” he said. It also included the monetization of 30 million square feet of retail space at DKAC.
- RCom also attempted to strike a deal with Reliance Jio of Mukesh Ambani for Rs 18,000 crore for telecommunications assets. But the deal fell apart when the Telecommunications Ministry asked Jio to accept RCom’s arrears.
- The crisis was also seeping into power. Reliance Power had raised a record Rs 11,563 crore during the IPO in 2008. It aimed to set up 13 gas, coal and hydroelectric projects of 28,200 MW. But gas was never supplied. The largest of these gas-fired projects – the Dadri Gas Electricity Project – involved obtaining gas at preferential rates from the KG-D6 gas fields at Mukesh Ambani. However, Elder Ambani said he couldn’t sell gas at $ 2.34 per million British thermal units because government prices were $ 4.2 per mBtu. The Supreme Court ruled in favor of Mukesh Ambani and the Dadri project never took off.
- Anil Ambani was forced to consider selling the assets of Reliance Power as projects worth thousands of crore were stalled due to the financial crisis or lack of availability of raw materials. He told Reliance Power shareholders in September 2018 that 24,000 MW of power plants were blocked due to the non-availability of gas and that investments of Rs 1.2 lakh crore were blocked.
- RPower sold the SPV which was formed to run the Tilaiya ultra mega energy project to Jharkhand Urja Vikas Nigam for Rs 112 crore. He also withdrew from Krishnapatnam’s UMPP saying it was not viable.
- The defense was not doing well either. Ambani was mired in controversy after Congress accused him of improperly taking advantage of the $ 8 billion Rafale fighter deal.
- In March 2015, Anil Ambani bought Pipavav Defense which was struggling to repay a debt of Rs 7,000 crore. The acquired entity failed to repay Rs 10,700 crore to around 12 banks, run by IDBI Bank which brought the company to NCLT. Infrastructure lender IFCI filed a similar claim in November 2017.
- In September 2018, the total debt of the group companies stood at Rs 1.72 lakh crore. The company started selling assets and even entire businesses. Reliance Entertainment had already sold Big Cinemas in 2014.
- Reliance Infrastructure sold the Mumbai city power distribution company to Adani for Rs 18,000 crore in order to repay part of its debt of over Rs 23,000 crore. RInfra had also sold its cement business to Birla Corporation for Rs 4,800 crore.
- Reliance Infrastructure, a company of the Reliance group, owns the land at the Santacruz head office. He tried to sell the 700,000 square foot headquarters in Santacruz to pay off some of his debts last year. Legal issues arose when the company got the plot of land when it bought the state-run electricity distribution company BSES. The power company said the land had been transferred to the company for administrative purposes and to install substations. But by then, Adani Transmission had finalized the acquisition of Ambani’s electricity distribution business in Mumbai. And that’s when Yes Bank burst in with their claim to the plot of land.
- Ambani was ranked the sixth richest man in the world with a wealth of $ 42 billion in 2008. Ambani’s equity value – after excluding the promised shares – had plummeted to just 144.60 crore rupees ( $ 20.4 million) in 2019.
- The overall market value of Anil Ambani’s Reliance group companies collapsed to Rs 2,361 crore in 2019, from the peak of over Rs lakh 4 crore in 2008.
- Anil Ambani had given a personal guarantee for loans worth Rs 1,200 crore to Reliance Communication and Reliance Infratel Ltd by the State Bank of India under a personal guarantee deed in September 2016. The guarantee was in favor from the financial creditor to extend credit facilities of Rs 565 crore to RCom and Rs 635 crore to RITL. However, both RCom and RITL defaulted around January 2017. The accounts were retrospectively declared as non-performing account (NPA) with effect from August 2017.
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