Anil Ambani last week was a stoic figure in the Supreme Court as the bench pronounced him in contempt of an order to pay Swedish telecom company Ericsson Rs 550 crore. It was quite a different image of yesteryear’s go-getter Ambani, who ran marathons and was the toast of Page 3 parties.
Ambani Junior has now four weeks to purge his contempt and make good Rs 453 crore, or else he will go to jail for three months.
The bigger question now is: will the Union government continue Mr Ambani’s Reliance Defence as an “offset partner” with France’s Dassault Aviation for the delivery of 36 Rafale jets? There have been serious questions about Ambani Junior’s lack of experience in defence production; but now with a conviction by the apex court for dishonoring a payment contract, will it be ethically and financially prudent for the government to endorse him?
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The younger Ambani’s downward slide has been evident as daylight. The two brothers, Anil and Mukesh, parted ways soon after father Dhirubhai died in 2004. Mukesh inherited the flagship petrochemicals and oil refining business, while Anil took over financial services, power generation and telecom. For Anil, there was initial rapid growth through acquisitions, but he failed in handling his ballooning debt.
THE RCOM FIASCO
Reliance Communications (RCom) is one such build-to-bust story. In the initial years, RCom had grown fast shelling out Rs 5,800 crore for the acquisition of spectrum in 13 circles in 2008. By 2010, it was No 2 after Airtel, and held over 17 per cent of the market.
Then came withering competition, with the number of telecom players increasing from 8 to 14 after the spectrum auction in 2008. By 2012, RCom lost its No 2 position to Vodafone and slipped below No 4 by 2016. Two-three things went wrong for RCom. Its growth was almost entirely funded by expensive debt, which between 2008 and 2016 soared from Rs 25,000 crore to over Rs 45,000 crore.
Second, it invested heavily in outdated technology. It persisted with the old CDMA (Code Division Multiple Access) system much after GSM (Global System for Mobile) came in, and began the shift only after 2008. RCom also put in money down the hatch, investing in 3G circles, a technology that was short-lived and quickly gave way to 4G. However, it was the assault of Reliance Jio with predatory prices that spelt RCom’s doom.
Before RCom recently decided to file for bankruptcy, the final nail in the coffin came when Reliance Jio backed out from buying RCom’s assets including 178,000 kilometres of fiber, which might have brought in Rs 25,000 crore.
EARLY MOVES TURN SOUR
Anil Ambani had a weakness for media and entertainment too. Soon after the family separation in 2005, he acquired the profitable Adlabs from Manmohan Shetty for Rs 350 crore, marking his entry into film processing, production and exhibition. By 2008, Anil Ambani became the largest multiplex operator with nearly 700 screens. He also sailed into film-making in 2008 with a $550 million investment (over Rs 2,000 crore) with Stephen Spielberg’s DreamWorks, and entered radio, DTH and broadcasting. But by the end of 2014, the media party was over. Reliance Media Works, crippled with losses, sold hundreds of its multiplex screens to Kerala-based Carnival Films to reduce debt.
In infrastructure, after bagging the contract for operating the Delhi Airport Metro Express for 30 years, Reliance Infra pulled out in 2013, unable to run the project profitably. By the end of March 2017, Reliance Infra and Reliance Power were both weighed down with debt close to Rs 26,000 crore and Rs 30,000 crore respectively. Perhaps, the only company that showed good returns is financial services Reliance Capital.
Hindsight shows Anil Ambani’s problems stem from seeking rapid growth through high debt and expensive acquisitions. Debilitating competition with his brother, as the RCom case proved, too has taken a heavy toll. Today, while Mukesh’s personal worth is over $40 billion (Rs 2.8 lakh crore), the constant erosion of the share value of Anil Ambani firms has ensured his worth has slipped to less than $1.5 billion (Rs 10,500 crore).
As a last resort, Anil Ambani changed gear and put his bets on the private defence sector, expected to be a $100 billion industry by 2022. Reliance Infra acquired a controlling stake in Pipavav Shipyards, and christened it Reliance Defence and Engineering. It is this Reliance Defence that has emerged as the “offset” partner for France’s Dassault.
With all the controversy surrounding the Rafale deal, and now Anil Ambani in the dock, it is difficult to imagine this foray will go through.