About two weeks ago, Reliance Communications Ltd (RCom), the troubled telecom company promoted by Anil Ambani, failed to pay the coupon on its 2020 dollar bonds even after the expiry of the grace period. It was the first big default after the Insolvency and Bankruptcy Code came into effect in May 2016.
Social media can be brutal and unforgiving. The dark humour machine went wild with comparisons between the two Ambani brothers. ‘Dhirubhai’s two sons – Mu-CASH and A-NIL!’ read one viral missive. Though tasteless, the humour mill did reflect something of the public perception.
By March 31, 2017, RCom’s debt stood at a whopping Rs 45,733 crore. The company after the payment default bravely put out a statement that there was a standstill on interest and principal repayments till December 2018. But, that did not stop the mayhem. RCom’s dollar bonds crashed and were trading at about 35 cents to a dollar. Its stock plummeted 12 per cent on the BSE hitting an all-time low of Rs 10.15. Other Anil Ambani companies like Reliance Power and Reliance Capital, too, were dragged down.
Anil Ambani’s flagship was indeed in trouble – its net loss for the September quarter at Rs 2,709 crore had more than doubled from Rs 1,210 crore in the previous year’s comparable quarter.
Early, brave forays
After the death of Reliance Group patriarch Dhirubhai Ambani, the two siblings Anil and Mukesh split the family business. Initially, the smaller Anil Ambani Group (ADAG) showed great drive with deep forays in hitherto unexplored areas. Among the first moves of Ambani Junior was the acquisition of the highly 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 in
India and abroad
The ADAG Group also burst into film making in 2008 with a $550-million investment with Stephen Spielberg’s DreamWorks, and entry into radio, DTH and broadcasting and even news television. In the same year, Reliance Power did a record-breaking initial public offering of Rs 11,500 crore. Investor appetite for the Ambani company was so hot that the issue was oversubscribed 69 times.
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 for Rs 700 crore 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 end-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 ADAG company that showed some robust returns, is financial services major Reliance Capital.
Betting on defence
His various businesses hitting headwinds, Anil Ambani decided to change gear and put his bets on the defence sector. India is the largest importer in the world of armaments; and with defence expected to be a $100-billion industry by 2020, the opportunities are big. Hoping for first-mover advantage, Reliance Infra acquired a controlling stake in Pipavav Shipyards, which has a licence to build warships, and christened it Reliance Defence and Engineering. The company also set up a 400-acre Aerospace Park at Mihan near Nagpur to assemble helicopters.
With hindsight, one can see a large part of Anil Ambani’s problems stem from seeking rapid growth through high debt and expensive acquisitions. This strategy has led to hobbling many of his companies. However, it is debilitating competition with his brother that seems to be equally exhausting. Anil and Mukesh initially, after their costly court battle that ended in 2010, inked a truce that included removal of the non-compete terms. What followed was ‘cannibalistic’ competition from which Mukesh has emerged trumps.
It started with media. Today the elder brother, with the acquisition of Network18, ETV and Balaji Telefilms, is among the largest of India’s media moghuls, while Anil Ambani has virtually exited the sector. In telecommunications, with the launch of Reliance Jio in which Mukesh Ambani has pumped in close to Rs 1 lakh crore and a host of freebies for poaching customers, Anil Ambani’s flagship RCom has been crippled with poor margins.
The defence sector could be the next theatre of conflict. Mukesh Ambani has quietly been building his assets in this sector, too. With deep pockets and astute planning, he has a way of coming in from the outside. Anil Ambani will have to be careful that Defence too does not turn into another Achilles Heel.
(The writer can be contacted at gurbir1@gmail.com)
