As of December 31, 2019, Anil Ambani’s telecom, naval, infrastructure, and power businesses have defaulted on loans worth over Rs 43,800 crore.

The downfall of Anil Ambani 42 billion net worth to zero in 12 years
Money Corporate Tuesday, February 11, 2020 - 13:11

In 2008, Anil Ambani was the sixth richest person in the world according to Forbes, with a wealth of $42 billion. Twelve years down the line though, the brother of Mukesh Ambani has pleaded poverty to a London court, claiming that he is worth nothing.

After taking over the telecom, power generation, financial services businesses post the Ambani brothers split, all of Anil’s businesses are drowning in debts, with some of them landing in the bankruptcy court.

As of June 2019, the total market capitalisation of the six group companies of Anil Ambani’s Reliance Group stood at Rs 6,196 crore. Post market closing on February 10, 2020, the total market capitalisation stood at Rs 1,645.65 crore.

The once billionaire is currently battling a lawsuit by three Chinese banks, which are trying to recover over $680 million they lent to Reliance Communications in 2012 under the condition that Anil Ambani personally guarantees the debt. The London court has now asked him to deposit $100 million in six weeks.

However, Anil Ambani pleaded that the value of his investments has collapsed and that his net worth is now zero, after taking his liabilities into account. “In summary, I do not hold any meaningful assets which can be liquidated for the purposes of these proceedings,” a Bloomberg report quotes him as telling the court.

Here’s a lowdown on the downfall of Anil Ambani:

The Ambani split

When Dhirubhai Ambani, the father of Mukesh and Anil Ambani, died in 2002 without a will, Mukesh was made the chairman and Anil the managing director of Reliance Industries, which at the time was a Rs 28,000 crore business conglomerate.

However, trouble began brewing between the brothers and in 2005, the company was split into two. While Anil took over the telecom, power generation and financial services businesses, Mukesh kept the oil-refining and petrochemicals businesses. They also signed a non-compete pact until 2010.

Reliance Communications, Reliance Power, Reliance Capital, Reliance Infrastructure, Reliance Naval, Reliance Home Finance are the businesses run by Anil Ambani’s Reliance Group.

According to reports, Anil really wanted the telecom business, which at the time was an industry with immense promise and scope for growth.

The downfall of Reliance Communication

Reliance Communication or RCom as it is also known, was the most promising business Anil took over.

Reports say that when RCom started as Reliance Infocomm in 2002, it chose the CDMA (Code Division Multiple Access) platform, which was then an emerging technology. However, rivals such as Airtel and Hutch were using the GSM (Global System for Mobile Communication).

However, as the telecom industry grew, Reliance was at a disadvantage with CDMA, since it only supported 2G and 3G. When 4G came, RCom lost out.

Adding to its woes, over the years, competition in the telecom industry intensified with various players vying for more subscribers, lower prices. In a bid to stay in the game, Anil kept borrowing to grow and expand the business. Telecom is a capital-intensive business and over the years, the industry was hit with price wars and falling profitability, and RCom was no exception. As Anil kept trying to grow the business aggressively, the need for investments went up, which meant he was borrowing more.

This included network expansion, entering various deals and even setting up a sister company for undersea cable network.

The final nail in the coffin was his brother’s entry into the telecom business. After the non-compete clause ended in 2010, Mukesh acquired Infotel Broadband marking his foray into the telecom business. In 2016, he took the industry by storm with the launch of Reliance Jio Infocomm, which sounded the death knell not just for RCom, but for the entire telecom industry.

Amid widening losses and piling debt, RCom shut its wireless operations in 2017. Anil then shifted focus to other businesses. He also announced a debt resolution plan to sell assets and pare debt.

At the time, Anil struck a deal with his brother to sell RCom to Jio, but the sale was scrapped after the telecom department asked Jio to take responsibility for RCom’s dues, which Mukesh wasn’t willing to do.

It went into insolvency proceedings in May 2018, with the National Company Law Tribunal (NCLT) admitting three petitions against RCom, filed by Ericsson. At the time, Ericsson claimed that RCom owed it over Rs 1,100 crore in dues. The Supreme Court had, at the time, threatened to imprison Anil if he didn’t pay Rs 5.5 billion to Ericsson India in a month’s time. Mukesh Ambani then stepped in at the last moment and made the payment for his brother.

"We have decided we will not proceed in this sector. Many other companies have taken a similar call. This is very much the writing on the wall," Anil reportedly told shareholders at the 14th annual general meeting of Reliance Communications in September 2018.

Cut to 2020, RCom has over Rs 50,000 crore in debts. Its assets are up for sale. Jio has been declared highest bidder for Reliance Infratel, while UV Asset Reconstruction Company has been declared the highest bidder for Reliance Communications and Reliance Telecom, as per a CNBC TV18 report. Airtel too, which bid for these assets, wasn’t the highest bidder for any.

On the other hand, Industrial & Commercial Bank of China Ltd (ICBC), China Development Bank and Export-Import Bank of China have reportedly sued Anil Ambani in London for defaulting on $708 million of loans including interest. It was following this that Anil Ambani was directed by the court to pay $100 million, which he reportedly plans to appeal against.

Reliance Capital

In May 2019, Reliance Capital exited the mutual funds business by selling its entire stake in Reliance Nippon Life Asset Management Ltd (RNAM). Both partners held 42.88% each in the company, while the rest is with public shareholders.

Reliance Capital said at the time that the entire proceeds of nearly Rs 6,000 crore ($860 million) will be used to reduce Reliance Capital’s outstanding debt by 33%.

In July 2019, Anil said that the company will be raising Rs 217 billion by selling assets of various businesses. At the time, Reliance put its general insurance business, its private equity/real estate business and radio business on the block.

In September 2019, Anil announced that Reliance Capital will exit its lending business and let its insurance units become long-term value creators. Reliance Home Finance and Reliance Commercial Finance are working closely with lenders to finalise a resolution plan, it was further announced.

Anil told shareholders at the time that Reliance Capital suffered great collateral damage from the crisis in the financial services sector and ‘irrational action by auditors and rating agencies’, and the economic slowdown.

Reliance Home Finance also defaulted on bond repayments.

Reliance’s infrastructure and power businesses

Reliance Infra and Reliance Power have not been doing well either. Both companies have been defaulting on loans.

On January 7, Reliance Power informed the stock exchanges that it defaulted on a debt repayment of Rs 685 crore in Q3. After the default, Yes Bank acquired 30% stake in Reliance Power subsidiary Rosa Power Supply by invoking pledged shares.

Meanwhile, reports suggest that Adani Group is in talks with Reliance Power to acquire one of its subsidiaries Vidarbha Industries Power (VIPL), which supplies electricity to Adani Electricity Mumbai.

In the past, the Adani Group also acquired the Mumbai electricity distribution business from Reliance Infrastructure in 2017, apart from also buying two transmission projects from the company.

As per reports, Reliance Infra had a debt of Rs 148 billion as of September 2019.

Other businesses

As on December 31, 2019, Anil Ambani Group companies including Reliance Communications, Reliance Naval & Engineering, Reliance Infrastructure, and Reliance Power defaulted on loans worth over Rs 43,800 crore.

In January 2020, Reliance Naval & Engineering was admitted for insolvency proceedings by the Ahmedabad bench of the NCLT. This came after the company defaulted on dues to IDBI Bank, which first filed for insolvency proceedings in June 2018.

According to reports, Reliance Naval has Rs 9,492 crore in loans outstanding.

RCom’s undersea cable company GCX also filed for bankruptcy protection in a court in Delaware in the US in September 2019. This came after GCX defaulted on payment of its $350 million of 7 per cent bonds that matured on August 1.

Overall, while Mukesh Ambani has gone on to become the richest man in Asia, brother Anil is drowning in mounting debts, payment defaults and legal battles. As per industry experts, Anil Ambani was handed businesses with immense scope, but those which needed constant innovation and investment to stay on top of the game.

While the country was hit with an NBFC crisis, a slowdown in the economy and intense competition in the telecom sector, several observers say that these issues combined with reckless growth plans and an unchecked ambition has led to the eventual downfall of one of the richest men in the world.

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