Anil Ambani’s Journey From Being a Billionaire to Going Bankrupt

This blog is the journey of infamous Ambani brother, Anil Ambani, who ended up being bankrupt despite of owning funds in billions of  Rupees.

A Brief Introduction

Once, being the sixth richest person in the world after inheriting the wealth and Reliance businesses left behind by his father, Dhirubhai Ambani, founder of Reliance Group, Anil Ambani as per the Forbes 2007 richest list had a net worth of $ 45 billion that becomes Rs 2, 52,000 crores when adjusted to the market rate of 2007. Anil was loaded with swag money after a conflict with his elder brother Mukesh Ambani, which led into a split of Reliance Group in 2005. Subsequently, Anil acquired novel businesses such as power generation, financial services and telecom. Everything to Anil Ambani till now was served on a silver platter, providing him enough to build his legacy, but Anil witnessed hard times within a few years. It is being said, “When life gives you lemons, ask for sugar and water too. Otherwise, your final product will be some acidic juice, which literally sucks!

Sure life had given lemons in the form of unpleasant events to Anil. Eventually, he lacked the two important ingredients, namely ethics and trust of reliance to come out of the situation and turn it in his favour, just as one requires sugar and water to turn acidic juice into lime juice.

Anil Ambani is no longer a part of the Billionaire club. In fact, in February 2020, in the UK court over the order of paying $716 million to the three Chinese banks, Anil Ambani claimed poverty by stating in a plea, “My net worth is zero after taking into account my liabilities. In summary, I do not hold any meaningful assets which can be liquidated for the purposes of these proceedings,".

However, the truthfulness of this statement is still questionable, as he possesses a yacht, luxurious cars and number of properties. Yet, one thing can be said for sure, the net worth of Anil Ambani for 2019 has dropped to $ 1.7 billion, according to the Forbes listings.

Now, where and how the tidy sum gradually disappeared? What went wrong in his journey? all such buzz and bummers will be addressed in this blog. So let’s get started

Dispute between Ambani brothers resulted in a split of Reliance Empire

From the dons of Dalal Street to kiosk workers all have an old saying, the Indian Economy witnessed changes when self-reliance turned into Reliance Group. The aura of Dhirubhai Ambani was such that he seemed like a wizard to people, who by rolling his magic wand of tactics can convert any business into a masterpiece. The Karizma of Reliance Industries came across like, the investors provided trust, and the company gave them high returns.

Soon after the death of the corporate king, Dhirubhai Ambani in July 2002, there were tittle-tattles all over, that the two brothers will fight for ownership over the Rs 28,000 crore Reliance conglomerate. The cause of bitterness among the Ambani brothers were numerous, but largely the tussle between them was over the reign of Reliance group.

Soon the businesses Anil owned shrank or merged. The merger was for reducing the piled up debt of Reliance Anil Dhirubhai Ambani Group (Reliance ADAG). The Reliance Power Limited previously known as Reliance Energy Limited had a subsidiary, Vidharba Industries Power that was acquired by the Adani Group. It consequently received an overall rating of (ICRA) D, in issuer not cooperating category as of August 30, 2019.

Reliance Natural Resources Limited (RNRL) was merged with Reliance Power. RNRL had a market cap of Rs 6883.64 as of 9th November 2010.

On the other hand, Reliance Industries (RIL) owned by Mukesh Ambani showed impressive performance. The market cap as on 30th December,2005 was Rs 1,23,924.67 crore, which compounded to Rs 13,46,530.52 crore as on 14th December, 2020, a whopping 10.86 times of increase in the market cap.

Collapse of Reliance group of industries owned by Anil Ambani

Reliance Power had launched its first IPO on February 11, 2008, that was subscribed in less than a minute, setting a record of fastest subscription in the Indian capital market. It raised Rs 11,563 crores. The purpose of hit up was to set up 13 gas, coal and hydro-power projects. But the projects required gas at cheap rates that were supposed to be supplied by Mukesh Ambani from his gas fields.

Eventually, the power project never took wing. The gas prices are controlled by the Indian government which sold it at $ 4.2 per million British thermal units (mBtu), so Mukesh couldn’t supply the gas at the agreed prices pledged in a family deal at $ 2.34 per million mBtu. The dispute went to court, where the court stated, family agreements cannot be more important than the set government policy on gas pricing. This way, the power project became something of a white elephant.

Several projects for which debts were raised exceeded their stipulated time and cost that led to piling of Rs 1, 20,000 crores debt in these projects.

Reliance Communications was unable to honour financial obligations

Reliance communications in 2006 was the second biggest telecom company in India during that year. It was a gemstone amongst all the Reliance companies as Anil Ambani had 66% stakes in it.

Global System for Mobile Communications (GSM) and Code-Division Multiple Access (CDMA) are the two dominant technologies for mobile communications, where GSM is an advanced and flexible technology that can be easily implemented. On the other hand, CDMA has its limitations. Rcom when entered in the communications business in 2002 opted for CDMA technology, although its competitors such as Airtel and Hutch used the GSM technology that took Rcom two steps back. CDMA technology was limited to 2G and 3G networks lone.

Rcom got a major hit with the launch of Jio 4G networks set forth by Mukesh Ambani. The company failed to upgrade itself to 4G network, was trapped in debts and got stuck in a price war like a stranded fish in a tidal pool. Ultimately, the Rcom in 2017 sold its wireless business to Aircel, and in 2019 Rcom Cable Company filed for bankruptcy.

Reliance taking a shot in the defense sector

Anil Ambani led Reliance Infrastructure limited had acquired Pipavav Defence and Offshore Engineering for Rs 2,082 crore on 5th March 2015, unaware of the fact that it was dealing with the debt of Rs 7,000 crores. Additionally, to make the bad situation worse, National Company Law Tribunal (NCLT) took legal action against Pipavav Defence by starting insolvency proceeding for its non-compliance to pay debt taken from Industrial Finance Corporation of India (IFCI), and Industrial Development Bank of India (IDBI).

Dire performance of other companies

Reliance capital manifested dire performance.  The financial debt as of September 2019 was roughly Rs 19,805 crores. On the other hand Reliance Infrastructure had a debt of over Rs 5,960 crores for 2019. The debt was Rs 19,143 crores in 2018, which got reduced by 70% in the next year. The company is planning to reduce its debt to zero shortly. Reliance Capital has two subsidiaries namely Reliance Home Finance and Reliance Commercial Finance that have a total debt of Rs 13,000 crore and Rs 9,812 crores respectively.


What went wrong?


Caught in scandals – the Central Bureau of Investigation (CBI) had inquired on the involvement of Anil Ambani in 2G scandal. He was accused of setting up Swan Telecom to get 2G licenses.

Moreover, Anil Ambani had unpaid dues to be given to Ericsson for its services to Reliance communications. He could face imprisonment for three months in case of non-compliance to pay dues to the tune of Rs 580 crores. Here Mukesh Ambani made a dramatic intervention by paying money and saving the younger brother from imprisonment.

Also, Anil Ambani had to clear dues with the three Chinese banks – Industrial and Commercial Bank of China Limited, China Development Bank and Exim Bank of China. He owes more than Rs 5,276 crores including legal costs following which the UK court filed an affidavit. All such events downgrade the share price, affecting the investors and reputation of the company.

Lacking vision and focus – for the first time in 2008, Reliance Power Limited (RPL) had launched its IPO that was oversubscribed 73 times, and substantially collected $ 190 billion. RPL then had the largest number of shareholders, no listed company had in the world before. The reliance group companies were characterised to generate gains from the moment it listed in the stock exchanges. No issue since its establishment in 1965 had failed to date in the stock market. However, when the issue was opened again on February 11, 2008, Reliance magic didn’t work. The per-share price never returned even nearby the issue price.

Roughly $ 9 billion of market capitalisation went wiped out, and billions of wealth of the investors evaporated. The reason attributed for such tragic event was RPL being a newbie in the market, had made full use of its brand name, but it had no assets and cash flow at its end. Also, the IPO was aggressively overpriced at Rs 450 that fell at Rs 372.50, suddenly in a blink of an eye. The stock of the Reliance Group was among the favourites of long and short term investors, but this day the investors lost heart from the protagonist of the group – Anil Ambani.

Stuck in Flex and Flame – Anil Ambani had the love for the fancy world, he had close ties with influential politicians and big Bollywood celebrities. As a result, to no surprise, he expanded his business in the entertainment domain by purchasing multiplex chain Adlabs from entrepreneur Manmohan Shetty in 2005 for Rs 350 crores. He became the largest multiplex owner by 2008, hitting a jackpot with nearly 700 screens all over India. However, in 2014 Reliance Entertainment was piled with debts and in consequence, had to sell hundreds of screens. Anil shifting to unrelated glam businesses was the reason for the loss. He had recklessly rushed into several businesses in one go, to achieve his unchecked ambitions. If the moves had been carefully planned with taking the right decisions at the right time, the bullet could be dodged.

Conclusion

Anil Ambani led Reliance ADAG saw failures despite a Reliance brand name. The failure got attributed to wrong decision making, poor management skills, untimely decision making, etc. Currently, Anil Ambani is struggling to pay the dues of the debt-ridden companies and fighting legal battles. Despite events didn’t go as planned, his story is not finished yet and we still expect a comeback. Fingers crossed.