Big brother’s bailout doesn’t mean Anil Ambani is out of the dumps

I owe it to you.
I owe it to you.
Image: REUTERS/Adnan Abidi
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An eleventh-hour bailout from elder brother Mukesh Ambani may have helped him stave off a jail term, but Anil Ambani has many more battles to fight.

Late on March 18, bankrupt Reliance Communications (RCom) said it had made a payment of $80 million (Rs547.86 crore) to the Swedish telecom equipment maker Ericsson, a day before a supreme court deadline ended. In a statement, RCom chairman Anil Ambani thanked his brother, India’s richest person and chairman of the oil-to-retail conglomerate Reliance Industries, for stepping in.

My sincere and heartfelt thanks to my respected elder brother, Mukesh, and Nita, for standing by me during these trying times, and demonstrating the importance of staying true to their strong family values by extending this timely support. I and my family are grateful and deeply touched with their gesture.

In 2014, Ericsson’s India subsidiary had signed a seven-year deal with RCom to manage and operate its network. Last year, it sued Anil Ambani’s firm over the unpaid dues. In January, the bench at the top court took a strict view saying there seemed to be a case of “willful disobedience” on the part of the younger Ambani. The failure to pay up yesterday would have meant three months behind bars for him.

These dues, however, are just a small share of the Reliance Group’s Rs46,000 crore overall debt.

RCom still needs to pay other creditors, including 40 domestic and foreign banks, the government, and a public relations firm. Next month, a payment of Rs281 crore is due to the government while it has already defaulted on a Rs21 crore payment to India’s department of telecom (DoT). And no solutions have appeared on the horizon.

Last December, a silver lining emerged when Anil Ambani was on the verge of selling RCom’s tower, fibre, and airwaves assets to Reliance Jio Infocomm, his brother’s telecom business. However, the deal failed to take off following DoT’s objections citing the money RCom owed it; Jio refused to take over the debt.

Soon after the payment to Ericsson was announced, RCom announced the termination of the deal with Reliance Jio. The pact would have had helped Anil Ambani raise $2.4 billion and kept his empire afloat for some more time.

Besides RCom, the Reliance Group’s power firm (RPower), defence venture (Reliance Naval and Engineering), and infrastructure firm (Reliance Infrastructure) are all in a tight spot.

In August 2018, rating agency Crisil had downgraded RInfra’s non-convertible debentures (NCD), a type of fixed-income asset, to default after it failed to pay interest on it. Last August, Reliance Infrastructure had to sell its Mumbai power business to Adani Transmission.

The fall

Anil Ambani parted ways with his brother in 2005, three years after the demise of their father Dhirubhai Ambani, who founded the Reliance empire.

While Mukesh Ambani took charge of the flagship oil and petrochemical business, Anil Ambani got telecom, power generation, and financial services. A non-compete agreement ensured the siblings wouldn’t step on each other’s toes.

These newer-age businesses under Anil Ambani had a promising growth plan and, in order to expand, he borrowed aggressively—and, in hindsight, recklessly.

The beginning of Anil’s downfall can be traced to 2010 following the scrapping of non-compete agreement. This allowed Mukesh Ambani to enter telecom and launch Reliance Jio in 2016. An aggressive tariff war and cut-throat fight for market share ensued, which, in 2017, finally forced Anil Ambani to down the shutters on the struggling RCom, once India’s second largest Indian telecom firm. At the end of March 2018, RCom had an accumulated losses of Rs23,950 crore.

While Mukesh Ambani continues to be Asia’s richest man, his brother’s fortunes have eroded.