RISE OF A PHOENIX
Indian Economy & Market|July 2021
Let us accept the truth that Mr Anil Ambani is one who is 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. Life certainly has not been kind to him. Imagine once the sixth richest person in the world, with a wealth of USD 42 billion has recently given a testimony in a British court that his net worth was zero. However, he is not someone who squandered away his wealth or flew away in his private jet to a foreign country. There is fall from the grace for his group in last twelve years, nevertheless, the position is getting better and is much better than year ago. This is in spite of the continuous bashing by a fifth-generation politician. The recent developments initiated by Anil Ambani’s new lieutenants, not to exclude his sons, indicate a change for good. These are considered to be rational decisions. We believe that there will be consolidation in the group. Some of the companies not doing well are likely to meet RCom’s fate while others will lead the revival of the group.
Krishna Kumar Mishra

The shares of Reliance Group of Companies (earlier known as Reliance Anil Dhirubhai Ambani Group) are soaring and most of them hitting circuit. This has definitely boosted the net worth of its promoter, Anil Ambani. The combined market cap of the companies controlled by him has increased by whopping 330 per cent in last three months. The current market cap of group companies is around Rs 10,000 crore up from Rs 3000 crore at the start of March 2021.

It is pale shadow of what his companies commanded market cap in year 2008, when he was the sixth richest person in the world according to Forbes, with a wealth of USD 42 billion. It was an era when he was credited with India’s largest IPO, that of Reliance Power, which in 2008 was subscribed in less than 60 seconds, the fastest in the history of Indian capital markets to date.

There is fall from the grace for his group in last twelve years, nevertheless, it is much better than year ago when promoter Anil Ambani, who in year 2020 told a British court that his net worth was zero.

What led to such a drastic fall of the group, which gained dubious distinction of one of the fastest destroyers of shareholder wealth in the last 100 years? The combined group market cap declined by 99 per cent from its zenith (Feb 2008) to nadir (March 2020). The more important question is that the current resurgence in the market cap of companies is for real or there are some operators trying to take advantage of euphoria in the market? Will the companies prove to be a Phoenix or current uptick is just flash in the pan? Most of it will depend upon how the promoter of the companies will handle the situation going ahead. Therefore, we will first explore the intention and grit of promoter himself and after that the business he is into.

From Flamboyant to a Financial Wizard to a Modest Entrepreneur

Anil Ambani, who had received a Master in Business Administration from the Wharton School of the University of Pennsylvania, one of the ivy leagues colleges, was the younger of two sons of Dhirubhai Ambani, the founder of Reliance Industries. He was flamboyant, more outgoing and the public face of Reliance Industries. He was financial wizard and represented the company in most of the roadshows held world over to raise finance for different ventures since 1990’s. It was under his guidance, in February 1994 the company made the biggest GDR issue of that time of USD 300 million. Contrary to his elder brother, Mukesh Ambani, who was regarded as highly determined as well as being a talented engineer and manager, Anil Ambani appeared as the public image-maker of Reliance, talking to the press and investors. Thus the two brothers were complementing each other.

Nevertheless, what differentiated them were their acquaintances and with whom they spent time. The elder brother was trying to project Reliance as a modern corporation run by professional managers. He surrounded himself with old and trusted recruits like his former schoolmates Anand Jain and Manoj Modi. In the same time Anil’s friends circle comprised mostly from outside the company, including some from film industries and politicians. The flashy Anil, who is married to a former film actress, likes designer clothes and jogs every morning, his chauffeur driving slowly behind. He always had dreamt big and wanted to do things in scale.

Anil seemed to have got what he wanted after separation from Reliance Industries. He got new-age telecom business, along with the financial services and energy business, which held, then, a lot more promise than the oil to chemical business. 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 to great heights.

Many of the businesses that he got after the demerger of Reliance Group were cash hungry. He received parts of Reliance Group with interests in telecom, entertainment, financial services, power and infrastructure. The most risky investments he made, however, were in power and infrastructure. Driven by cheap capital in the 2000s, 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.

Anil Ambani was not alone in this race, others such as Ruias of Essar, G.M. Rao of GMR Group and G.V.K. Reddy of the GVK Group were others who got into high leverage and saw their net-worth declining in next decade. 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. We saw even Tata group doing couple of large foreign acquisition in the same period.

What really hurt Reliance Group the most was that he spread himself too thin in business and high leveraging of debt to fuel expansions that can bring down business empires. And exactly this has happened. What added salt to injury was turning of the business environment adverse.

State-owned banks that stood the test of time during the great financial crisis of year 2008, had now amassed huge non-performing assets (NPA) after indiscriminately lending to infrastructure and power projects. They 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. 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 plants in Dadri, Uttar Pradesh.

Situation became much worse during 2012-13 when nearly Rs two lakh crore worth of projects were stuck after the bureaucracy went into a policy logjam following the 2G spectrum controversy and Coalgate, where irregularities 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.)

What also went wrong with RCom was the technology they had adopted. When it started out as Reliance Infocomm in 2002, it chose CDMA (Code Division Multiple Access), against the GSM (Global System for Mobile) platform, used by their competitor like Airtel and Hutchison Max now known as VI. 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. The fate would not have been different if telecom business would have been in the hands of elder brother.

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