😲 Riches to Rags: The Anil Ambani Story

A Deep Dive on How Anil Ambani went from $42B to $0!

Jan 18, 2023

An empire worth Rs. 49,500 crores…

What if you were inheriting an empire this huge? Would you be able to manage it? Or would you screw up and lose it all?

18 years ago, two brothers were given this empire.

One made it bigger, and the other took it down.

Of course we're talking about the Ambani brothers.

While Mukesh Ambani never leaves the spotlight, today we'll walk through Anil Ambani's untold journey.

⚔ The Division of the Empire

When Dhirubhai Ambani passed away in 2002, a bitter feud started between the two brothers about how his vast empire would be divided.

The dust settled in 2005 and this is how the businesses were distributed:

Anil Ambani: Reliance Infocomm (telecom), Reliance Energy (electricity, later became Reliance Power) and Reliance Capital Limited (financial services).

Mukesh Ambani: Reliance Industries Limited and Indian Petroleum Corporation Ltd.

With this division, came a non-compete agreement: None of them could enter the other's business till 2016.

Ironically, Anil got all the glamorous businesses and Mukesh got the non-glamorous cash cow.

So how did Anil end up going from riches to rags?

Let's take a look company by company.

Reliance Power

By 2008, Anil Ambani had managed to become richer than Mukesh Ambani, with a net worth of $42 billion.

This fortune was short-lived.

As per an older agreement, Mukesh Ambani was to supply gas (till 2022) to Anil’s Reliance Power at a price that was 44% lower than the then government’s prevailing rates.

In 2010, Mukesh stopped doing this! Why?

Because the government had raised gas prices. It was no longer feasible for him to give cheap gas to his brother.

What next?

Anil took Mukesh to court, which sided with Mukesh because the gas was government property and it had the right to decide prices.

This took away the competitive advantage of Anil and marked the beginning of his downfall.

The company's alleged involvement in the coal allocation scam (this needs a piece of its own!) further eroded trust.

This combined with poor management drove RPower into major debt.

Today, its debt stands at around Rs. 26,000 crores!

However, the company is still standing. It has one of the largest power portfolios in India. And it is set to get a loan of Rs. 1,200 crores from Varde Partners which could give it a boost.

Reliance Telecom

There was a time when Reliance Infocomm or Reliance Communications was one of the biggest telecom players.

It was the Jio of the 2010s, providing affordable phones and phone calls.

But it faced three major problems:

Its alleged involvement in the 2G scam (the scam highlighted irregularities in the distribution of spectrum) caused RCom shares to fall. Plus, its reputation was damaged.

RCom had focused on CDMA tech (which doesn't involve a sim card). This helped it lower costs. But other players were focusing on GSM because it had better network quality and international roaming. So, consumers shifted to GSM. To stay in business, RCom had to reinvent itself. This meant major expenditures on infrastructure, which put the company in debt (noticing a pattern here?).

When Mukesh Ambani entered the space with Reliance Jio, it was game over for Anil and RCom.

The company failed to pay off its Rs. 45,000 crore debt and headed for bankruptcy proceedings in 2018. These proceedings are still ongoing!

Reliance Capital

Yet another Anil Ambani company currently facing bankruptcy proceedings. Its failure was the result of the failures of Ambani's other companies. How?

Anil Ambani's businesses were super capex heavy.

He also spent a lot on acquisitions in the entertainment space.

So, he started using Reliance Capital's lending businesses to fund his other ventures.

Reliance Home Finance lent out huge amounts to Reliance Infrastructure and Reliance Power, which they failed to repay.

In 2019, it had an exposure of Rs. 8,708 crores to group companies as well as other corporates. And while Anil failed to pay back debts, Reliance Capital also faced difficulties in raising funds. Why?

All thanks to IL&FS' default in 2018: the default eroded people's trust in NBFCs.

Anil tried to make it through by selling assets like the Mutual Funds and the Insurance business.

This didn't help. RCapital filed for bankruptcy in 2021 after defaulting on bonds worth Rs. 24,000 crores.

Even before RCapital failed, Anil Ambani's net worth had gone down to zero (yes, he admitted it in a UK Court in 2020)!

He has also been removed from the boards of the still operating company for charges of syphoning funds.

👀 Key Failures that Led to Anil Ambani's Downfall

By charting his entire journey, we found key pointers that led to this massive downfall:

Running capex heavy businesses with too much leverage
Taking on too much debt when money was flush
Living a lavish lifestyle (he allegedly rode his helicopter twice a week just to cover a few kilometres of distance)
Filing lawsuits against anyone and everyone! This was also capital and time intensive

These factors were grouped with a heavy dose of bad luck.

Ambani inherited these businesses at a time when power and infrastructure were facing a downturn, thanks to the financial crisis.

Maybe strategic planning could have prevented losses this huge?

He still has Reliance Power and Reliance Infra: sectors that are seeing an uptick again today.

Will he be able to turn his fortunes around from here? Who knows…

We wanted to dive into this to understand how big companies can also fail - and inheriting a large empire means little if execution is flawed. Business is a risky venture, and it should be seen as such :)

Let us know if you found this informative? You can reply to this email with your responses or ping us directly on WhatsApp!

ReadOn

Discussion about this post