In Greek mythology, Icarus, son of master craftsman Daedalus, put on wax wings to fly out of Crete but his ambition led him too close to the Sun that melted his wings. It is an oft-told cautionary tale of ambition and hubris. Closer home and much more in recent times, Anil Ambani's current situation is yet another Icarus-esque tale. The youngest scion of the Ambani clan, who was handed the brightest of the Reliance lot is now facing personal bankruptcy proceedings.
Anil Ambani and elder brother Mukesh Ambani were handed over the reins of the Reliance businesses, erected by magnate Dhirubhai Ambani. The younger son received the new-age telecom business, as well as the financial services and energy arm. On the other hand, Mukesh Ambani inherited the petrochemicals operations.
The younger Ambani brimming with potential with the yet-to-explode telecom business had ambitious plans. He wanted his company to become the biggest player in telecom, power and infrastructure. But, that's perhaps one of the reasons he finds himself in current predicament. Amit Tandon, Founder and Managing Director, Institutional Investors Advisor Services told BusinessToday.In that he was jumping from one business to another and there were shortcomings in execution. Tandon said that in many projects the cost was more than anticipated with no return. And the debts kept piling up.
In 2018, the group companies' total debt stood at Rs 1.72 lakh crore. In 2019, Reliance Communications headed to the bankruptcy court with a debt of Rs 46,000 crore. Revenue for RCom fell to Rs 1,734 crore in FY20 from Rs 27,710 crore in FY10. The trajectory of most group companies was the same. The power business saw unfinished projects, while Reliance Capital (RCap) met with lost opportunities. Reliance Naval and Engineering, the defence company is also under debt.
But that's vis-a-vis the rise of elder brother Mukesh Ambani who is not just the richest man in India, but also figures in the top 10 top rich list globally. His fortunes have soared, especially since the launch of Reliance Jio. As per the latest valuation, Reliance Industries m-cap stands around Rs 13.19 lakh crore. This year Jio Platforms saw investments from financial and strategic investors to the tune of 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 is in contrast to Anil Ambani's companies, which have faced a series of challenges and roadblocks. While some are said to have been brought on by executional shortcomings, some appear to be bad timing. Here's a look at how Anil Ambani slipped to the verge of bankruptcy:
- At the crux of the crisis is Reliance Communications that was handed over to Anil Ambani when the empire was divided between the two brothers. In 2002 when RCom started out as Reliance Infocomm, the company opted for Code Division Multiple Access or CDMA, an emerging communication technology. It had similar output to Global System for Mobile or GSM that was used by Airtel and Hutchison Max. But CDMA was limited to 2G and 3G technology. So, when the landscape swiftly changed to 4G and 5G, RCom found itself ill-equipped and lost out. In 2008, when RCom received spectrum, its debt pile had already reached Rs 25,000 crore. Uninor, Aircel and other operators had also added to the competition. By the end of the UPA government's second term, nearly Rs 2 lakh crore worth of projects were stuck after the 2G spectrum crisis.
- In the 2018 AGM, Anil Ambani announced that they decided not to proceed in the telecom sector. "As we have moved out of the mobile sector, we will monetise our enterprise business at an appropriate stage. Reliance Realty will be the engine of growth for the future of this company," he said. This also included monetising 30 million sq ft of commercial space at DKAC.
- RCom also tried to strike a deal with Mukesh Ambani's Reliance Jio for Rs 18,000 crore for the telecom assets. But the deal fell apart when the Department of Telecommunications asked Jio to accept RCom's arrears.
- The crisis was seeping in from the power arm also. Reliance Power had raised a record Rs 11,563 crore from IPO in 2008. It aimed to set up 13 gas, coal and hydro power projects of 28,200 MW. But the gas was never supplied. The biggest of these gas powered projects -- the Dadri gas fired power project -- was to get gas at concessional rates from Mukesh Ambani's KG-D6 gas fields. However, the elder Ambani said that he can't sell gas at $2.34 per million British thermal unit because government prices were $4.2 per mBtu. The Supreme Court ruled in favour of Mukesh Ambani and the Dadri project never took off.
- Anil Ambani was forced to consider selling off assets of Reliance Power as projects worth thousands of crores were stuck due to financial crisis or lack of availability of raw materials. He told Reliance Power shareholders in September 2018 that 24,000 MW of power generation plants were stuck due to non-availability of gas and investments of Rs 1.2 lakh crore were stuck.
- RPower sold the SPV that was formed to execute the Tilaiya ultra mega power project to Jharkhand Urja Vikas Nigam for Rs 112 crore. It also pulled out of Krishnapatnam UMPP stating that it was unviable.
- Defence wasn't going great either. Ambani was mired in controversy after Congress accused him of unduly benefitting from the $8 billion Rafale fighter jets deal.
- In March 2015 Anil Ambani bought into Pipavav Defence that was struggling to pay off Rs 7,000 crore in debt. The acquired entity failed to pay off Rs 10,700 crore to around 12 banks, led by IDBI Bank that took the company to NCLT. Infrastructure lender, IFCI, filed a similar application in November 2017.
- As of September 2018, the group companies' total debt stood at Rs 1.72 lakh crore. The company started selling off assets and even entire businesses. Reliance Entertainment had already sold off Big Cinemas in 2014.
- Reliance Infrastructure sold the Mumbai city power distribution business to Adani for Rs 18,000 crore to repay part of its over Rs 23,000 crore debt. RInfra had also sold its cement business to Birla Corporation for Rs 4,800 crore.
- Reliance Infrastructure, a Reliance Group company, owns the land of Santacruz headquarters. It tried to sell the 700,000 sq ft headquarters in Santacruz to pay off some part of its debts last year. Legal trouble emerged as the company got the land parcel when it bought state-run electricity distribution company BSES. The electricity company said that the land was transferred to the company for administrative purposes and to set up substations. But by then, Adani Transmission had completed the acquisition of Ambani's power distribution business in Mumbai. And it was at this point of time that Yes Bank swooped in with their claim on the land parcel.
- Ambani was ranked the sixth richest man in the world with a wealth of $42 billion in 2008. The value of Ambani's equity -- after excluding pledged shares -- had crashed to just Rs 144.60 crore ($20.4 million) in 2019.
- The aggregate market value of Anil Ambani's Reliance Group companies crashed to Rs 2,361 crore in 2019, compared to the peak of over Rs 4 lakh 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 State Bank of India under a Personal Guarantee Deed in September 2016. The guarantee was in favour of 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 in repayment around January 2017. The accounts were retrospectively declared as Non-Performing Account (NPA) with effect from August 2017.