The Story of Anil Ambani’s Reliance Group
Brothers may fight. Brothers may make peace. And the destinies of brothers may collide. But they don’t converge, especially not in the Reliance family.
As Mukesh Ambani ascends the ladder of business fortunes every day, his sibling Anil Ambani finds it more and more difficult to hold his own. The latter’s companies have faced a series of challenges and roadblocks, often on account of executional shortcomings.
Post the split in the “Reliance Empire” in 2006, Anil Ambani has witnessed a downward spiral in the business he inherited. Ventures failed, acquisitions didn’t go as planned and debts piled on as the younger Ambani finally admitted bankruptcy in the court last year and thus his inability to pay off loans — a situation that, however unfortunate, is frankly shocking in light of the disclosures related to his “hidden wealth” in the Pandora Papers!
So, what went so wrong for the Reliance Anil Dhirubhai Ambani Group (ADAG)? Why did the RBI take over the board of Reliance Capital, its financial services company? And what are the events that led to Anil Ambani turning from the sixth-richest person in the world in 2008 to admittedly “worth nothing” today?
Fortunes Favour the First-Born?!
Well, surely not. Following Dhirubhai Ambani’s death in 2005, the family business was split in this manner:
Mukesh got control of oil, gas, petrochemicals, refining and manufacturing parts of the business.
Anil got electricity, telecom and financial services.
Many believed at the time that Anil was handed the brightest of the Reliance lot like energy, power, infrastructure and even new-age and brimming-with-potential businesses like telecom. But as it turns out, their potential didn’t quite turn out as expected, mostly due the flaws in their execution.
Here’s how their courses were upended.
Reliance Communication (RCom)
It was the jewel in Anil Ambani’s kitty. The company bet big on an emerging communication technology called Code Division Multiple Access (CDMA). Yes, it was emerging and it rivalled the Global System for Mobile (GSM) technology that was used by Airtel and Hutchinson (erstwhile Vi) at the time.
But CDMA was limited in its application to 2G and 3G which is quite ill-equipped in a world fast-moving towards 5G. On top of it, the 2G spectrum crisis added to RCom’s debt pile as the UPA Government stalled projects, telecom rivalries mounted with new players in the field (including and especially Mukesh’s Jio) and the onset of the AGR regime which acted as a death knell to the company.
And thus followed bankruptcy and lawsuits by RCom’s investment partners like Sony Ericsson and lenders like the China Development Bank. Fate took a cruel twist when an RCom-affiliate (Reliance Infratel) was forced to seek a deal with Jio through the sale of its fibre and tower assets.
Reliance Power
The year was 2008. Reliance Power launched a blockbuster IPO which ended raising a record amount of ₹11,563cr ($1.5bn) after being fully subscribed in under 60 seconds — the fastest in Indian capital markets history.
The company was aimed to fulfil Anil Ambani’s ambitious 13 projects of gas, coal and hydropower. However, the global financial crisis of 2008 acted as a major setback to those ambitions as prices of these fuels (especially gas) at reasonable rates came under fire.
Interestingly, the elder brother stepped in to help, offering the supply of natural gas from his own subsidiaries. Albeit, for a price. He insisted that the non-compete clause signed earlier be annulled.
Wait, What? During the division of family assets, Mukesh Ambani had signed a non-compete clause agreeing not to enter businesses in which Anil was operating, including telecom.
So, when Anil Ambani agreed to the waiver of the clause, it allowed Mukesh Ambani to enter the telecom business and the rest is history. So, in a way, the waiver came as a death blow to Anil’s other businesses. And to what end? Reliance Power continued down a path of operational failure anyway and had to sell its major assets. The company has ₹1.2Lcr ($16.1bn) of investment stuck in those 13 projects.
Reliance Capital
In 2010, Anil Ambani envisioned plans to create a “world-class bank”. Alas, he couldn’t even sustain a non-bank (i.e. NBFC).
After taking bigger and bolder bets in other business ventures, he moved on to financial services. Reliance Capital was an NBFC that had its hands in many pies like asset management, life insurance, wealth management, commercial finance, home finance etc.
However, the story is more complicated under the hood. One of the first rules of sustaining a lending business is to steer clear of “inter-corporate lending” or lending to your own group companies, especially those with stressed assets.
But this rule clearly fell on Reliance Capital’s deaf ears as it kept extending loans to sister companies like Reliance Infra and Reliance Power. Following the IL&FS and DHFL debacles and consequent financial crisis, funding for NBFCs like Reliance Capital also began drying up. To make matters worse, the company started selling its stakes in other subsidiary companies that were doing quite well (like its mutual fund and insurance companies).
The Outcome: As of March 2021, the total financial liabilities of Reliance Capital stood at ₹20,822cr ($2.7bn).
The Fault in Reliance’s Stars
Reliance Capital, by itself, has zero value. However, its stake in 20-odd subsidiaries (Reliance General Insurance, Reliance Nippon Life Insurance, Reliance Asset Reconstruction etc.) and five associated companies is what makes it the incense in the tinderbox.
This also presents challenges in the resolution process because if the acquirer is to bid using Reliance Capital’s valuation on the basis of its multiple stakes, that would pose complications for the companies holding those stakes. It is also worth mentioning that the Insolvency and Bankruptcy Code (IBC), 2016 permits selling the company as a single unit, which makes it unclear as to how the RBI is to go about the process of liquidating Reliance Capital.
As for the fate of Reliance ADAG and Anil Ambani, his duelling fortunes vis-a-vis his billionaire brother have become a cautionary tale in the industry lately. Even though some argue that the elder Ambani’s overtures into the telecom and power businesses helped hasten the demise of the younger Ambani’s fortunes, it wouldn’t be fair to consider it exclusively. Wrongful execution of business strategies, large-scale misgovernance and short-sighted visions collectively contributed to the enterprising supernova that is Reliance Group.
For now, a fair and equitable resolution of the debt-ridden group companies remains paramount to avoid their ripple effects on other sectors of the economy. Take note that the Reliance ADAG companies have garnered a debt that is ten times than what is owed by Vijay Mallya, yet another inglorious defaulter. Plus, with LIC’s IPO soon in the offing, it remains crucial to tie down the misfortunes of Reliance Capital in which the state insurer still remains the single-largest institutional shareholder.
(Originally published January 22nd 2022 in transfin.in)
