In a tangle of his own making

It’s an extraordinary fall for a man listed by Forbes magazine in 2008 as the world’s sixth wealthiest person, with a net worth of $45 billion. Just over a decade later, Anil Ambani’s fortunes have dipped to $1.7 billion, placing him at 1,349th in the same list. His elder brother, Mukesh, is ranked 13th. Ironically, the steep decline in wealth is the least of Anil’s concerns at this point of time, as he has to rustle up ~550 crore in the next four days to pay off Ericsson, if he has to escape a prison sentence.

It is rare for a prominent industrialist (let alone an Ambani) to be summoned to court in India. And even rarer for him to have been found in contempt. Mr Ambani has been subjected to both. And, the Supreme Court’s observations against the Reliance group was damning: The order talked about the group’s “cavalier” approach and “deliberate misstatements”. “This is not a case of accidental or unintentional disobedience,” the apex court said, as Mr Ambani listened with rapt attention. His advisers should have been as attentive to the judiciary in the past, and should have cared more for prudent financial management.

It is unlikely that Mr Ambani would fail to pay Ericsson within the SC-stipulated deadline, even though other lenders are not playing ball and more companies have queued up before the SC under the contempt jurisdiction to claim their dues from Reliance Communications (RCom) and its directors. The company has already deposited ~131 crore with the court registry. But it would be a nerve-wracking week for sure, as the lenders are still refusing to oblige Mr Ambani on his request that they release the income tax refunds that RCom has received. The lenders have said RCom has no right to have its dues paid by the ~260 crore “public money” held in the trust and retention account.

What is surprising, however, is that Mr Ambani has allowed the crisis to reach a flashpoint. After all, the problem with Ericsson has been brewing over the last 18 months and there was ample time to resolve the matter. The Swedish company claimed it had halved its unpaid dues demand from the original ~1,150 crore, but the Anil Ambani firm simply refused to pay even after the SC granted a three-month extension for repayment. That led the SC to come down hard on Mr Ambani. No one seems to know the rationale for this audacious violation of the apex court’s order.

If the lenders manage to stick to their stand of not transferring the IT refunds, Mr Ambani would have few options left. He did draw up a detailed plan to monetise his real estate assets, but it’s still in limbo. Even if the deals go through, it will take time, and that’s precisely what Mr Ambani doesn’t have. He has put on the block his 43 per cent stake in Reliance Nippon Asset Management Company, but the Japanese partner is yet to respond. The one deal that could have bailed him out is the sale of spectrum assets to Reliance Jio. That hope has also been snuffed out, with his elder brother refusing to bear guarantee for RCom’s past debts. In retrospect, it was perhaps a bit much to expect RJio to give that kind of undertaking solely on the ground of brotherly love.

There are other uncertainties, too. Mr Ambani’s office has announced that an “in-principle standstill understanding” had been reached with creditors, under which he would sell his 31.6 per cent direct stake in Reliance Power to fund loan repayments. In return for this commitment, the lenders would not sell any pledged shares until the end of September. But it now transpires that not all lenders are on board on this.

While the final act is still to unfold, the point is that Mr Ambani is a victim of a prolonged state of denial about the group’s precarious financial position, resulting from seeking super-fast growth through high debt and expensive acquisitions. The group has been struggling with a mountain of debt for long, but his close group of advisers simply refused to see it, and took a shoot-the-messenger approach every time the media raised the issue of an increasing RCom debt (over ~45,000 crore in March 2017) and dipping inability to service that debt.

To be fair, Mr Ambani has exited several businesses — media & entertainment (of course after bleeding heavily), cement, roads and power transmission assets — to pare down the group’s debt. But by the time he got off the high horse, it was already too late. The first sign of a real big trouble came in November 2017 when Reliance Infrastructure failed to pay the coupon on its 2020 dollar bonds even after the expiry of the grace period. It was a telling coincidence that in the same month, the elder brother’s Reliance Industries sold dollar bonds at the cheapest rate ever by a nonfinancial Indian issuer.

In an interview a year ago, Mr Ambani was frank enough to talk about the “torture, trauma, mental agony and stress” he went through, but said he was “tempered like steel” and was confident of coming out of the rough patch. His well-wishers would wait for him to walk the talk — finally, and fast.