A BILLIONAIRE FALLS

From being one of India’s star businessmen to a defaulter facing a jail term, where does Anil Ambani go from here?

FROM BEING ONE OF INDIA’S STAR BUSINESSMEN TO A DEFAULTER FACING A JAIL TERM, ANIL AMBANI’S BUSINESS DEBACLE IS A TEXTBOOK CASE OF UNBRIDLED AMBITION AND RISKY BUSINESS VENTURES GONE WRONG. WHERE DOES HE GO FROM HERE?

CIRCA 2005. HUNDREDS OF journalists gathered at the Dhirubhai Ambani Knowledge City (DAKC) tech park at Kopar Khairne in Navi Mumbai on a Sunday, at the behest of the media relations cell of Anil Ambani, the younger scion of the Reliance empire. No one seemed to mind that they had been called in for a press conference on a Sunday. After all, both Anil and elder brother Mukesh Ambani had had several such meet-ups over issues that ultimately led them to split the family business. Finally, Anil seemed to have got what he wanted—the new-age telecom business, along with the financial services and energy business, which held a lot more promise than the bread-and-butter petrochemicals operations, which formed the core of the group; this

went to Mukesh. That day, Anil, an avid marathoner, then in his mid-40s, was brimming with confidence as he laid down his plans in telecom. He looked like a go-getter, ready to tap into the potential of the Indian mobile telecom revolution and, along with it, take the fortunes of his group—ADAG or the Anil Dhirubhai Ambani Group as it was then known—to great heights.

Cut to 2019. Reliance Communications (RCom), Anil’s mobile telephony venture, has all but wound up, even as he owes lenders Rs 48,000 crore. His businesses have shrunk to fixed-line communications, data centre services and enterprise solutions with revenues of Rs 4,684 crore in fiscal 2018, a far cry from the Rs 19,000 crore logged in 2008. Market capitalisation (a measure of the company size and shareholder appeal) has plunged from a peak valuation of Rs 1,65,917 crore in January 2008 to just over 1 per cent of that value at Rs 1,687 crore on February 18, 2019. The combined valuation of Anil’s listed firms stood at Rs 24,922 as on February 22, 2018. By comparison, Mukesh’s Reliance Industries Limited (RIL) had a market cap of Rs 7,70,592 crore on February 18. Last year, RCom said it will exit the telecom business, but on February 2 this year, it shocked investors by proposing a debt resolution plan to the National Company Law Tribunal (NCLT) and said it expected “substantial unsustainable debt and liabilities to stand extinguished under the NCLT process”. Shares of RCom plunged 48 per cent and six other firms of the group also saw their shares plummet. Anil alleged that two of RCom’s 11 lenders—L&T Finance Holdings and Edelweiss—had “illegally” sold some of the group companies’ shares pledged with them, triggering a domino effect. He later reached an in-principle ‘standstill understanding’ with more than 90 per cent of the lenders, who agreed not to sell any of the promoters’ pledged shares till September 30 this year, giving group firms a reprieve, leading to an uptick in their share prices.

Meanwhile, Anil had to face the ignominy of being threatened with a jail term by the Supreme Court on February 20 over the Rs 550 crore he owed RCom’s onetime vendor Ericsson for the managed services the Swedish firm provided its telecom business. The apex court said that Anil and two directors—Reliance Telecom chairman Satish Seth and Reliance Infratel chairperson Chhaya Virani—had to pay Rs 453 crore (the remainder after part payment earlier) to Ericsson India in four weeks, failing which they could be jailed for at least three months. RCom is expected to use income tax refunds of around Rs 400 crore in its account to make the payment.

The Warring Inheritors

The rise and fall of one of India’s most talked-about businessmen in a little over a decade is a textbook study on how unbridled ambition, spreading oneself too thin in business and high leveraging of debt to fuel expansions can bring down business empires. Especially if the business environment also turns adverse. When Dhirubhai Ambani—father of Mukesh and Anil—died intestate after a massive stroke in July 2002, the Rs 28,000 crore business empire he had built over 25 years and which had made him a darling of the capital markets following RIL’s pub-

“NO ONE LIKES TO LOSE THEIR COMPANY. UNFORTUNATELY, RCOM HAS FALLEN ON BAD DAYS. I TRIED TO SAVE IT, BUT COULDN’T ” Mukul Rohatgi, to the SC on behalf of Anil Ambani

lic listing in 1977, looked set to move seamlessly into the hands of his two sons. The two had shared responsibilities when the senior Ambani was still chairman. After he died, Mukesh, a chemical engineer with a management degree from Stanford, became RIL chairman, and Anil, an MBA from Wharton, its managing director. The brothers were expected to run the business together. It was their father’s legacy after all—one built from scratch by Dhirubhai, once a petrol pump assistant in Yemen. Through a series of backward and forward integration moves in petrochemicals, Reliance became the country’s largest manufacturer of fibre, a raw material for the textile industry. However, it soon became clear that the transition from deceased father to sons would be anything but smooth.

The first signs of discord between the brothers appeared in early 2005, with a section of the media reporting, without giving names, of an impending split in the family. The spat between the brothers continued until their mother Kokilaben stepped in and brokered a peace pact in April 2005, supported by external negotiators such as chartered accountant S. Gurumurthy and banker K.V. Kamath. As per the agreement, made public again on a Sunday, the petrochemicals business under Reliance Industries would go to Mukesh, while the telecom business, which Mukesh had nurtured so far, would go to Anil. The brothers also signed a no-compete agreement—Mukesh would not enter the telecom business, while Anil would steer clear of energy and petrochemicals.

Overweening Ambition

Anil’s flamboyant ways were evident right from the time he took charge as chairman of the Reliance-Anil Dhirubhai Ambani Group or R-ADAG. (It was later renamed the Reliance Group, but the former acronym stuck in mainstream media.) More media-savvy than his brother, he addressed press conference after press conference (again, mostly on Sundays) with elan, savouring the media attention he received. The joke doing the rounds then was that Anil would call a presser to announce even a new product addition to his telecom business, getting his executives to make elaborate presentations on announcements that could have been faxed or e-mailed

to journalists. The fact that he flew in his helicopter from his South Mumbai home to the Dhirubhai Ambani Knowledge City in Navi Mumbai a few kilometres away twice a week was just one of the things his admirers would gush about. His proximity to Bollywood celebrities such as Amitabh Bachchan and politicians such as Samajwadi Party leader Amar Singh would make tongues wag. “Anil’s political connections were seen in a bad light by the larger public, especially his proximity to the controversial Singh,” says an industry observer. Anil was always drawn to Bollywood, right from the time he wooed the then leading actress Tina Munim and married her in 1991. It was not surprising, then, that one of his expansions was in the entertainment business, through a tie-up with Hollywood filmmaker Steven Spielberg’s DreamWorks Studios, making films for the global audience. Anil also bought multiplex chain Adlabs from entrepreneur Manmohan Shetty for Rs 350 crore in 2005, becoming the largest multiplex owner by 2008 with 700 screens in India and abroad.

The most risky investments he made, however, were in power and infrastructure. Driven by cheap capital in the 2000s, a host of businessmen—including Gautam Adani, the Ruias of Essar, Hyderabad-based businessmen G.M. Rao of GMR Group and G.V.K. Reddy of the GVK Group and the Tata Group—were driving huge investments in these sectors, aggressively bidding for new projects. Not to be left behind, Anil secured three of the major ultra mega power projects auctioned by the government in 2008 and 2009, at Sasan in Madhya Pradesh, Tilaiya in Jharkhand and Krishnapatnam in Andhra Pradesh. Meanwhile, Reliance Infrastructure was bidding for projects in railways, power and roads.

Cash-hungry Businesses

Nothing describes Anil’s current predicament better than the words of his counsel Mukul Rohatgi on his behalf during the Ericsson hearing in the Supreme Court this February. “No one likes to lose his company. Unfortunately, RCom has fallen on bad days. I tried to save it, but couldn’t,” Rohatgi told the court. “Now it’s up to the IRP (interim resolution professional, who will be appointed for the insolvency process). I am like any other person who has lost his company,” Rohatgi read out from his client’s statement, even as the younger Ambani stood and watched the proceedings. His lawyer seemed to be making a case for him to be seen not as someone who squandered away his wealth but one who was a victim of an adverse business environment, where a range of external factors— from stiff competition to betting on the wrong technology to an economic slowdown—had gone against him.

Observers say Anil was prone to taking up capitalguzzling projects immediately after the family split. “His decisions did not come out of a carefully crafted strategy; they were driven by ambition,” charges a stock market analyst who did not wish to be named. It was fashionable to bid for huge projects, which were financed by public sector banks (PSBs) at the behest of politicians, says another observer. Coming before the economic slowdown that followed the crash of Lehman Brothers in 2008,

businesses were in a mood to splurge over acquisitions and expansions, both at home and abroad. However, the environment would see a sea change after the slowdown. PSBs that had amassed huge non-performing assets after indiscriminately bankrolling infrastructure and power projects were reluctant to fund the sectors any more, even as many projects turned non-starters owing to land acquisition issues or problems with fuel linkages for power plants. Towards the end of the second term of the UPA government, nearly Rs 2 lakh crore worth of projects were stuck after the bureaucracy went into a policy logjam following the 2G spectrum controversy—in which the then telecom minister, A. Raja of the DMK, was accused of out-of-turn allocation of spectrum to many companies, some with no experience in the sector—and Coalgate, where similar charges were made regarding allocation of coal mining rights. (Anil too was drawn into the 2G accusations, with the CBI questioning him in 2011 amid allegations that Raja favoured his group on dual technology permits, and RCom’s association with Swan Telecom, which was being investigated for alleged diversion of funds to Kalaignar television, owned by the DMK.)

As if all this were not enough, Anil entered into a long-drawn legal battle with Mukesh over the price of gas from Mukesh’s oil fields in the K-G Basin to fuel Anil’s proposed 4,000 MW power plant in Dadri, Uttar Pradesh. In 2010, the apex court ruled that the two brothers renegotiate the family deal, and gave the government control over setting the gas prices. The new contract had to abide by a government price of $4.2 per million metric British thermal unit (mmBtu), compared with $2.34 per mmBtu for 17 years the brothers had agreed on in 2005. Observers say that besides sending the wrong signal to the international community regarding the pricing of natural resources, the legal spat deepened their estrangement. In 2014, Anil withdrew from the Dadri project, citing issues in obtaining land and gas supply.

Although the media savoured Anil’s occasional unions with Mukesh, be it at business conferences or at family functions, including the most recent wedding of Mukesh’s son Akash Ambani with Shloka Mehta, daughter of diamantaire Russell

Mehta, Mukesh apparently never forgave Anil the legal spat. So when the non-compete clause was scrapped in

May 2010, Mukesh wasted no time entering the telecom business. Starting with the acquisition of Infotel Broadband in 2010 for Rs 4,800 crore, Mukesh laid the foundation for what would be the biggest disruption ever in the telecom space. With its superior 4G technology backed by 2.7 lakh kilometres of fibre optic lines, Jio’s entry in October 2016 shook up all incumbents—RCom, Airtel and Vodafone. An agreement to buy Anil’s telecom business was seen as a positive gesture from Mukesh, but the way Mukesh allowed the deal to fall through, by refusing to be a guarantor for his brother’s dues, again demonstrated his tough stance on business relationships with Anil. “Mukesh will not even offer a straw to bail out Anil,” says an analyst. “The case of siblings reuniting in Indian business families is very rare,” he says, adding that the rivalry goes beyond the brothers and deeper into the family. Anil’s habit of seeking legal recourse at the drop of a hat has made him enemies outside his family too. He has issued several lawsuits worth thousands of crores, including defamation suits against journalists and analysts, apart from litigation on the business front.

Wrong Number?

What went wrong with RCom? When it started out as Reliance Infocomm in 2002, it chose CDMA (Code Division Multiple Access), an emerging technology that promised similar output to the GSM (Global System for Mobile) platform, used by rival operators such as Airtel and Hutchison Max. However, CDMA was limited to 2G and 3G (second and third generation) telephony. When the tide turned in favour of 4G in India—and 5G for the future—RCom began to lose out. With the company now planning to exit telecom, the group will focus on real estate, enterprise business and the submarine cable unit Global Cloud Xchange.

“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 told RCom shareholders at its 14th annual general meeting in September 2018. “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.” This includes monetising 30 million square feet of commercial space at DAKC.

The latest trigger for RCom’s troubles was the failure of a potential deal Anil struck to sell the telecom assets to Mukesh’s Reliance Jio for Rs 18,000 crore. The deal collapsed after the Department of Telecommunications in-

sisted that Jio accept RCom’s arrears too, which Jio was unwilling to do. In a statement, RCom said, “Despite the passage of over 18 months, lenders have received zero proceeds from the proposed asset monetisation plans, and the overall debt resolution process is yet to make any headway. Accordingly, the board decided that the company will seek fast-track resolution through NCLT.”

The Debt Pile-up

Cornered in his telecom business and challenged by a tough business environment in his other ventures, Anil had no option but to start selling assets. He was forced to consider selling off Reliance Power assets because huge projects worth thousands of crores were left hanging fire either for lack of financial closure or availability of raw material. The firm’s 24,000 MW of power generation plants are shut due to non-availability of gas. Investments to the tune of nearly Rs 1.2 lakh crore are stuck, Anil told Reliance Power shareholders in September 2018. The defence business he entered in 2015 by buying Pipavav Defence and Offshore Engineering for Rs 2,082 crore is mired in controversy. The opposition Congress has accused Anil of having unduly benefitted in the $8 billion Rafale fighter jet offsets deal. The only business that seems to be doing relatively well is the financial services business under Reliance Capital, consisting of firms dealing with asset management, life and general insurance, home finance and wealth management.

The real trouble started around 2014, when the group companies began to feel the brunt of its gargantuan debt (total group companies’ debt stood at Rs 1.72 lakh crore as on September 2018). It then began to sell off assets and sometimes entire businesses. In August 2018, Reliance Infrastructure, which had prestigious projects including the airport express metro corridor in New Delhi under its belt, sold the Mumbai city power distribution business to fellow industrialist Adani for Rs 18,800 crore. This transaction was expected to bolster Reliance Infra’s financials by repaying part of its over Rs 23,000 crore debt. Although Reliance Power had been awarded contracts to build three plants, it could build only one at Sasan in MP. It has argued in the courts that it needs permission to mine more coal for the project, without which it may incur losses and may have to abandon the project. In 2014, Reliance Entertainment sold its once acclaimed multiplex chain Big Cinemas to pare its debt.

Queries sent to the Reliance Group on group companies’ plans to pare debt and their future outlook went unanswered. All the company would share was a press release on RCom about its ‘standstill’ agreement with lenders (mentioned earlier).

What Next?

Did Anil’s companies suffer business downturns or were they mismanaged? Observers believe both these factors were in the mix; they also spoke of a “lack of vision and focus”. “If you have a really deep vision, you keep things coming and want to keep yourself liquid enough for the next step of investment and participation in business,” says consultant Ashvin Parekh. Most of the businesses Anil inherited were cash-hungry ones and demanded complete innovation and investments on a periodic basis. “That is particularly true of telecom. For financial services, it is a story of leveraging and the quality of your portfolios.” Mukesh, on the other hand, has not only kept a deep focus on his core businesses, but also added energy, retail and telecom over the years, creating a business behemoth through a disruptive process. He has also surrounded himself with close aides and trusted professionals, including Manoj Modi, Nikhil and Hital Meswani (sons of Rasiklal Meswani, a founding director of Reliance Industries) and P.M.S. Prasad.

“Each business has its own challenges,” says Shriram Subramanian, founder and CEO of InGovern, a proxy advisory firm. “There have been sectoral issues in power and infrastructure. But there was also unbridled ambition and growth plans that came to nought.” When funding came easy, group companies raised huge debts, but they were unable to repay them as businesses faced slowdowns. “Today, cash is hard to get, making doing business all the more tough,” Subramanian explains.

What next for Anil Ambani? Where does he go from here? Subramanian feels there will be a consolidation within the group. Some of the other firms that are doing badly—Reliance Infra and Reliance Power—may meet RCom’s fate, and opt for the insolvency route, he says. Some others, including asset management firm Reliance Nippon Life Asset Management, have better prospects ahead. But prospects can change and Anil, who brought in his elder son Anmol as a director at the financial services business in 2016, will have to ensure that he is both nimble and circumspect in grabbing the next big opportunity that comes his way.

“THERE HAVE BEEN SECTORAL ISSUES IN INFRASTRUCTURE AND POWER. BUT THERE WAS ALSO UNBRIDLED AMBITION AND GROWTH PLANS THAT CAME TO NOUGHT ” Shriram Subramanian Founder & CEO, InGovern