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Sunday 15 December 2019

Anil Ambani: From Status Of Tycoon To Insolvency

Study the career of Anil Ambani, and you will get a classic case of decisions you ought not take as a businessman and time you better utilise

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The study of the business journey of Anil Ambani, from No. 6 among the world’s richest to a position where his companies are looking for buyers, provides a classic example of things an entrepreneur should not do. On Saturday, he resigned also as the director of his main company Reliance Communications.

In 2008, Anil Ambani was the sixth richest person in the world. Today he was forced to resign from the post of director of Reliance Communications due to continuous losses. There was a time when RCom revolutionised the telecom world, today the company is going through the process of insolvency law and must sell its assets to repay the debt.

Anil Ambani’s RCom must repay debt of Rs 36,000 crore

When Dhirubhai Ambani’s Rs 28,000-crore Reliance Group was split in 2005, both Mukesh and Anil became near 50% partners, with the companies that went to the elder brother valued a bit higher. In that era, the telecom sector, which was making big profits had new possibilities, saw the emergence of Anil Ambani. It was decided that for the next 10 years, elder brother Mukesh would not enter this industry, which meant that possibilities were enormous for Anil Ambani. Even then, he went on to lose the edge.

Experts say when Reliance Infocomm was launched in 2002 with Anil Ambani choosing CDMA technology and competitors Airtel and Hutch Max going in for GSM technology, the decision was fraught with risks. The biggest problem with CDMA technology was that it only supported 2G and 3G, while 4G was to be introduced in India in the near future.

But even the advantage with CDMA like better call quality did not help Anil Ambani’s company. Customers of Reliance Infocomm, as much as those of another CDMA player of the time Tata Indicom, complained of over-billing as the phone devices unexpectedly registered call timings when the target phones rang rather than when the receivers at the other end received the calls.

In 2005, Anil Ambani’s telecom company was embroiled in a scandal wherein the company was accused of passing off international calls as local calls, much as the company escaped nearly unscathed as the regime led by then telecom minister Dayanidhi Maran let him go, charging a fraction of the actual dues.

Setback in infrastructure, entertainment Anil suffered

Anil Ambani expanded simultaneously. His main companies incurred losses in the same period, due to which they could not thrive. The younger Ambani signed a $ 1.2 billion deal with Adlabs in 2005 and DreamWorks in 2008. After this, he went into the business of infrastructure.

Anil could not do anything amazing in entertainment and infrastructure. In 2014, his power and infrastructure companies plunged into huge debt. They had the option to sell the companies to repay this debt. This business was not strong and other companies of Anil were incurring losses at the same time. He then started selling companies to settle the debt but did not succeed.

Jio dealt the last blow

While Anil Ambani was dealing with the crisis, the moratorium on elder brother Mukesh’s entry into telecom was over. He came up with Jio and won the market over. While big companies like Airtel, Vodafone started to incur losses in the Jio storm, it was a big blow also for Anil Ambani’s business.

Anil, trying to recover, slipped further. In the last few years, he has had to sell to companies like Big Cinema, Reliance Big Broadcasting and Big Magic.

Group debt of Rs 1.72 lakh crore in 2018

Along with Reliance Communications, the debt burden on other companies of the group gradually increased. Anil Ambani’s troubles started growing in 2014. According to a report, the group had a total debt of Rs 1.72 lakh crore in September 2018.

RCom’s position can be gauged from the fact that the total value (market cap) of the company in 2008 was Rs 1,65,917 crore, which came down to only Rs 1,687 crore in February 2019. The company had a total debt of Rs 35,600 crore, after which the company is now going through the insolvency process.

Anil Ambani’s Listed Companies Debt burden on companies (as of 31 March 2019):

  • RCom 35,600 Crore
  • Reliance Power Rs 30,200 crore
  • Reliance Infra Rs 17,800 crore
  • Reliance Capital Rs 38,900 crore
  • Reliance Naval & Engineering Rs 7,000 crore

After the split between the two brothers, the market cap of Reliance Group companies under Anil Ambani was Rs 2,36,354 crore in March 2008. It decreased to Rs 24,922 crore in February 2019. In the month of June, the market cap of six companies of the group reached Rs 6,196 crore.

Anil Ambani was no longer a billionaire. His personal wealth had reached below $ 1 billion.

In October, Mukesh Ambani’s Reliance Industries Limited (RIL) market cap had crossed Rs 9 lakh crore. According to the latest report, Mukesh Ambani has total assets worth $ 51.40 billion.

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