How does a person holding enviable future-facing businesses in the telecom, energy, infrastructure sectors go from a net worth of $42 billion, making him the world's sixth richest person in the world and third richest in India in 2009, to a net worth of somewhere between $300 million and $2 billion and unable to pay a paltry bill of $80 million owed by his telecom outfit?
Similarly, how does his brother, equipped with climate-unfriendly businesses in the petroleum and gas industries, become even richer than he was ten years ago -- now worth $43 billion according to the Forbes list -- to allow him to be hailed as a business visionary?
Today, those questions have once again become a hot topic of conversation when dealing with the Ambani brothers. Just a month ago, younger brother Anil Ambani was on the verge of being sentenced to three months in jail by the Supreme Court of India for not paying his $80 million business tab to Ericsson. Anil Ambani's would-be stint in the prison was averted at the last minute on March 22 when his elder brother Mukesh, with whom he has been embroiled in a bitter family dispute for the better part of 18 years, paid the debt. Despite the Ericsson debt being cleared, Anil still owes about $7 billion in debt to 39 different lenders and his telecom outfit RCom, once his crown jewel, has filed for bankruptcy.
The gaudy family saga's roots arose following the death of the brothers' larger-than-life businessman father Dhirubhai Ambani, who passed away in 2002. Dhirubhai, at the time, was India's most legendary businessman. As a petrol station attendant in Aden, Yemen, Dhirubhai realised that the face value of the coins jingling around in his wallet was less than their intrinsic worth as a metal. A quick arbitrage later, Dhirubhai returned home to India to become a trader of synthetic yarn.
What followed was the building of India's most successful new business empire post-independence as Dhirubhai's Reliance grew from to become one of the country's top textile manufacturers and a vanguard of a new capitalism. Reliance ushered in the era of the small shareholder. The company made millions of these shareholders rich on account of the company's soaring stock price and hefty dividend payments. Dhirubhai had burnished a reputation of being a savvy and cunning operator that did not allow the plethora of byzantine, stifling regulations and permits that were part of the Socialist-era 'License Raj' to stand in his way. At the time of his death Reliance was worth 1,00,000 crore, or $23 billion in market cap as per 2002 exchange rates, and contributed 17% of India's private sector profits and 3% of its GDP.
Meanwhile, his two sons Mukesh and Anil, were able and eager disciples, learning at the feet of their father. Observers say that the older Mukesh made a name for himself by being focused on operations and business execution while the more flamboyant Anil dealt with the bankers and the media. Anil also married a former Bollywood actress much against his father's wishes while his older brother wed a middle-class girl who was a classical dancer and school teacher.
Dhirubhai's death brought an abrupt end to the halcyonic dream that was the Ambani family success, in both life and home, as he did one thing that spelled the beginning of the end for his empire. He didn't leave a will.
Maybe this was intentional -- Dhirubhai didn't want to partition the $23 billion empire because he banked on his sons working things out. However, nothing seemed further from this reality. His death almost instantly plunged the two brothers into an acrimonious contest for the various arms of the businesses, with both wanting to become chairman of the conglomerate. Allegations of impropriety flew back and forth as they, along with their wives, lobbied and wrestled each other for control of Reliance.
For two tortuous years, both brothers existed in limbo. Finally, in 2005, their mother Kokilaban decided that enough was enough. A settlement had to be carved out of the $23 billion empire that Dhirubhai had left so she summoned the best bankers in the country to sort out the mess. Out of this cleavage, two iterations of Reliance emerged. Both used the same brand and logo that had won the hearts and wallets of millions of investors, but they were fundamentally different businesses.
Post the split, it made sense that the detail-oriented, operations-savvy Mukesh got the oil, gas, and petrochemicals business. After all, he single-handedly built India's largest petroleum refinery in Jamnagar for Reliance while his father was still alive. He also got the textile business. Anil on the other hand got the sexier, future-facing power, energy, and financial businesses. He also inherited Reliance Infocomm, a telecom business that was started in 2002 from funds obtained from the flagship Reliance Industries, which he renamed Reliance Communications, or R-Com.
Both Anil and Mukesh then went on a money-raising spree to start new projects or expand existing ones. At the time, it seemed that both empires were evenly poised. Mukesh's empire was old-world with no stratospheric growth ahead of it, but it crucially had $17 billion in revenues and $190 million in net income. Anil's future-looking empire with the fast-exploding telecom and power businesses eked out just $2.4 billion in revenues with net income of $16 million but you could argue that the businesses were still in their infancy. The two also signed a non-compete agreement, that would expire in 2015, which would prove to be the fulcrum on which their fates rested.
How competitive were the two brothers within the warm bosom of the family pre-split? Was one a clear favourite of the father or mother? Did they know it? Were things always fraught with fratricidal tension or did it manifest itself when large pots of money were at stake? You will have to wait for a detailed biography for these answers, but suffice to say, the death of Dhirubhai drew out knives between the brothers. Things didn't get any better when Anil was charged almost double the price for gas by Mukesh, with Anil desperately needing the gas for his new power plant. While the rate contravened the price set by a family agreement, resulting in the brothers taking the issues to court, the price set by Mukesh soon became the official national price. At the Supreme Court, the judge sided with Mukesh and Anil's power plant never got fired up.
You would imagine that with a fast-growing and liberalising India with a never-ending thirst for electricity and cheap communication, Anil couldn't really lose. The problem was that every one of Anil's businesses was capital-hungry. R-Com, his telecom outfit, quickly became India's second largest but had to spend heavily to keep with competitors, which meant piling on more debt. Then, Anil's power plants ran into all kinds of trouble sourcing coal, quickly becoming a big mess.
"He was jumping from one business to another. There were shortcomings in execution. In many projects, the cost was more than anticipated and those fetched no return," Founder and Managing Director of Institutional Investors Advisor Services Magazine Amit Tandon said in Business Today.
However, debt was not the only issue Anil's telecom business faced. The R-Com that Mukesh started and Anil inherited was built by using CDMA technology versus the pervasive GSM that the market was adopting. It had a telling impact on Anil's R-Com.
"RCom took a royalty-ridden rich man's technology and made it a poor man's offering. Deployment of CDMA-based networks was costlier than GSM. It was doomed," tech research firm Convergence Catalyst Partner and Founder Jayath Kolla told Business Today.
According to the report, RCom's average revenue per user was always well behind other competitors, which pumped up the losses. Still, despite the debt and the problems with fuel for his power plants, there was still hope that eventually time would allow for a turnaround.
Then, while Anil's businesses tacked on more debt, he went along with something that he probably regrets profoundly even to this day. In a show of family unity, false or otherwise on both sides of the faultline, Anil and his brother decided to do away with their non-compete clause.
In hindsight Anil could not have known what would follow. In fact, the non-compete had effectively caused a huge deal between Anil's R-Com and South Africa's telecom leader MTN in 2008 to be cancelled because Mukesh opted to trigger his right of first refusal, causing Anil to lose $30 billion of his net worth as R-Com's stock nosedived by almost 50% between July and November 2008. The deal could have transformed Anil's R-Com into a genuine global player.
Anil did not know it at the time but he had just allowed the wolf into his lair. Mukesh started quietly. In 2011, he acquired a pan-Indian license for 4G spectrum data transmission ostensibly for high speed internet transmission. You can read all about how a company with no funds and no assets somehow magically won the spectrum auction and then was instantly acquired by Reliance in this superb Caravan magazine article.
Everyone thought that Mukesh was simply interested in the internet broadband business but as he began putting pieces of his empire together -- buying certain spectrum here, striking deals for a voice component or towers there -- a more complete picture began to appear. Before you knew it, Mukesh ended up spending close to a staggering $40 billion on the back of his cash-rich oil and petroleum business for a pan-India telecom network with voice and data called Jio, which literally means live, that re-ignited his dreams of running a telecom empire that had been aborted by the death of his father. With Jio, Mukesh destroyed Anil's RCom practically overnight.
Everyone suffered from the carnage that Jio wrought with its free voice calls for life and dirt-cheap data in a country that was once the most expensive in the world. Companies collapsed like bowling pins during this devastating price war. Some merged. Balance sheets were obliterated. The industry went from nine players to just four or five overnight. Today, there are only three. Caravan magazine reports that by March 2018, the cumulative debt racked up by India's telecom companies was an astounding $75 billion, which is outlandishly high when you consider that revenues were only $27.6 billion.
Not surprisingly, R-Com suffered mightily during this period. With its mammoth debt, Anil's company had no chance of surviving this tumult and was almost instantly put on life support. To add to Anil's woes, all of his other companies have become afflicted with massive debt. By the end of 2017, Anil desperately needed a way to service the $7 billion in debt that his empire had racked up and so it decided to flog 122.4 MHz of spectrum, 43,000 telecom towers, switching nodes and fibre to none other than big brother Mukesh.
Everything appeared kosher until Jio, shrewd about its potential liabilities after the potential acquisition, sent a letter to the government seeking assurance that it would not be held liable for any of R-Com's past dues. The government decided that it could not honour this and the deal was scrapped, putting R-Com back in the hole. Meanwhile, Mukesh's net worth has blossomed to $54 billion, making him the richest man in Asia, ahead of Alibaba's Jack Ma and Tencent's Ma Huateng. His triple play, intertwining his telecom, retail, and entertainment empires is poised to make him one of the biggest and richest monopolies in Indian industry.
Anil, meanwhile, continues to fight for survival as his woes seem to keep piling up. Several of his finance companies unrelated to the telecom industry were downgraded in the last month or so as R-Com continues to negotiate its entrance into bankruptcy. The fire of controversy surrounding allegations that Anil Ambani was directly picked by the Prime Minister to partner with France's Dassault to manufacture Rafale fighter jets in India, despite having zero experience, has also dogged him in the run-up to the general elections taking place right now. He has also missed, for the third time in a row according to the government, spectrum dues worth $70 million.
Not down and out yet, it will nevertheless take a considerable amount of financial wizardry for the younger Ambani to get out of this hole and attain those stratospheric heights that he once took for granted.
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