ISHWAR SINGH

The rise and fall of Anil Ambani

Background

Anil was born on June 4, 1959, to Kokilaben and Dhirubhai Ambani in Mumbai, India.
Dirubhai
Ambani died due to a stroke in 2002. The brothers got entangled in a bitter battle
of ownership
of the Reliance empire worth Rs 90,000 crore following which, elder brother Mukesh
got the
flagship oil business, RIL and IPCL, while Anil received Reliance Infocomm
(telecom), Reliance
Energy (power), Reliance Capital and Reliance Natural Resources (RNRL).

The two brothers 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.

On June 6, 2002, the patriarch of the Reliance Group Dhirubhai Ambani passed away
without
leaving a will for the multi-crore business empire he had set up from the scratch.

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

How the trouble started

Sectoral stresses such as price wars, heavy debt and plunging profitability that
crippled India's
telecom sector also took their toll on RCom.

The trouble for Anil started in 2007-8, sparked off by a series of wrong decisions
by him. From
being the biggest gainer in the Forbes Rich List in 2007, Anil ended up being the
biggest loser in
the Forbes Rich List in 2008 — when it took a plunge of 72% and has been on the
downward
trend since.

Few of reasons are summarised below:

Collapse of the media venture

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.
In 2005, Reliance Capital, an Anil Dhirubhai Ambani Group company, agreed to buy a
51% stake
in Adlabs Films, the fast growing entertainment and multiplex company promoted by
Manmohan Shetty and Vasanji Mamania, for about Rs 360 crore. By 2008, Anil Ambani
became
the largest multiplex operator with nearly 700 screens. But by 2014, his media
venture
collapsed due to excessive losses. Anil had to sell several screens to reduce debt.

Financial Mess

The net-worth of Anil has diminished at an unimaginable rate over the last decade.
His current
net-worth of $1.7 billion, according to Forbes rich list, is a mere 3.8% of his $45
billion net-
worth 12 years ago — a compounded annual decline of 23.9%. On the other hand,
Mukesh’s
net-worth has risen 102% over the same period.
Just like his personal fortunes, the books of the companies owned by Anil have gone
for a toss
over the years. At the time of the split between the brothers in 2005, the biggest
asset in hand
for Anil was his 66% ownership in Reliance Communications (RCom). The holding, over
the
years, has come down to 53.08%, of which a majority 72.31 crore shares are held by
Reliance
Communications Enterprises — a privately held company of Anil Ambani.
In March 2007, total shareholders’ funds in RCom stood at Rs 22,930.65 crore,
including Rs
21,908.34 crore in reserves and surplus. Fast forward to March 2018 -- while the
company’s
borrowings, including long-term and current, stood at a whopping Rs 43,807 crore,
shareholders’ funds declined to a mere Rs 3,115 crore. In just one year (2017-18),
shareholders’
worth declined by 89.2% from Rs 28,969 crore to the current level — mostly on the
back of
depletion in the reserves, as the company set off its accumulated loss of Rs 23,820
crore.

Venture into defence

Many of his close aides attribute his downfall to venturing into non-core areas.
”To save his
slide, he ventured into non-core businesses, which cost him further,” a person
closely working
with all the Reliance ADAG companies said.
According to a former executive of Reliance ADAG Group, yet another bad decision by
Anil was
to venture into defence, which many people close to him say was aimed at rolling
over his
bulging debt in the name of big-ticket contracts. ”He got taken over by the thing
that the
government and ruling party is completely in his favour, and they will give him
contracts. But
the government can’t help him till he has built infrastructure and the capability.
He bought the
shipyard for his defence business, but that needs to be brought into working
condition,
otherwise, it’s useless.

Reliance Infrastructure had acquired 17.66% of Pipavav on March 5, 2015 in a $130

Mukesh Ambani wins court battle

In 2006, RNRL (Reliance Natural Resources) became a shell company after it lost the
court case
and vanished from public domain. The contentious issue was the supply of natural
gas from
RIL's KG D6, in Andhra coast, to RNRL for power generation at a price of $2.34 per
million British
thermal unit (thu) for 17 years. In its verdict in 2009, the Bombay High Court
upheld the
arguments of Anil's RNRL. But the Supreme Court reversed the order next year and
Mukesh
won the battle.

Concluding

Anil had grand plans for RCom. He intended to merge it with South Africa's MTN in
what would
have been India's largest-ever overseas deal. Only to be scuttled in July 2008,
after brother
Mukesh threatened to sue, claiming he had the right of first refusal. The stock of
RCom tumbled
48% from July 2008 to November 2008, costing Anil a whopping $30 billion of net-
worth.
People, who have worked closely with Anil or track him closely attribute his fall
to his way of
functioning, which includes excessive dependence on debt as a source of capital,
autocratic way
of functioning, and constant brush with controversial deals, like in the 2G scam
and the Rafale
deal.
On condition of anonymity that after his involvement in the 2G affair, he saw his
credit lines
crunched. ”Because of 2G scam, banks stopped funding him in 2011-12. That was the
first thing
that went wrong for him.

Yet another senior executive who has formerly worked very closely with Anil said he
lacks the
patience and endurance that running a business requires. ”He has no respect for the
professionals in his company. He used to take all decisions himself. Moreover, he
doesn’t stick
to his business for the long run, like his elder brother. He is too impatient. That
is costing him a
lot.”

Many believe that introduction of Jio also gave rise to problems for Anil Ambani,
however Tax
Herbs fell that it was too late for Mr. Anil Ambani at that point of time. It was
badly under debt
burden and cash crunches.