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Wednesday, July 28, 2021

Anil Ambani – A Riches To Rags Story Of A Series Of Wrong Business Decisions

 

INSIGHTS:

  • Anil’s dependence on debt as a source of capital was the main reason for his downfall.
  • A discussion of his plans with other important people on board his company would have saved Anil from taking wrong decisions.
  • Anil’s impatient behavior and not being able to stick to any business for a longer period was one of the reasons for not being able to continue in the billionaires club.
  • The services provided to him became unviable as he uses to over-leverage himself by taking loans from his connections.
  • A lack of focus in one business and unrelated diversification led to a series of failures.
  • Anil was being aggressive about business expansion which required huge capital and yet he did not plan and was not focused.
  • An investment in the sector about which he had no prior knowledge, lead to Anil’s failures.

 

The Background of Anil Ambani

Anil Ambani is the younger son of Late Dhirubhai Ambani, the founder of the Reliance Industry. He is the chairman of Reliance Group and the owner of many companies which include Reliance Communication and Reliance Power.

In 2008, the Reliance power unit of Anil was the fastest subscribed IPO in the Indian capital market.

Anil joined the business earlier than his elder brother Mukesh Ambani. After graduating from Wharton School, Anil joined his father’s business as a Co-CEO. He took his father’s company to a new height by raising $2 Billion from the global market and acing in the petrochemical, power, communication, and textile industry.

Anil was also elected as an independent member of the Rajya Sabha in the year 2004. He married Tina Ambani, who was a famous actress in the Bollywood industry back in the ’90s.

The Split of the Reliance Industries

Dhirubhai Ambani, the father of Mukesh and Anil, passed in 2002 due to a massive stroke without leaving a will for his sons. Mukesh became the chairman while Anil, the managing director. The brother continued to handle their father’s legacy for three years and made Reliance, The largest manufacturer in India of raw materials for the textile industry.

In 2005, the brother fought for power in their Firm due to which Kokilaben, Mother of Mukesh, and Anil stepped in and made an agreement according to which Mukesh got the oil and gas, petrochemicals, refining, and manufacturing industries whereas the junior Ambani became the chairman of Reliance ADA Group and owned the stock listed companies comprising Reliance Infrastructure, Reliance Capital, Reliance Communications and Reliance Power.

There was an agreement in which the two brothers decided that they would not compete with each other and will not enter as a rival to their brother’s respective industries.

Related Article: 4 Things You Didn’t Know About The Ambani Successor – Anant Ambani

The Presumptuous Ambitions of Junior Ambani

  • Anil was considered to be more ostentatious and media-savvy than his elder brother, Mukesh Ambani. He used to telecast every product his Telcom business launched, in the news.
  • He commuted in his helicopter to go Dhirubhai Ambani Knowledge City in Navi Mumbai from his south Bombay apartment
  • Anil had a good reach in Bollywood and his wife, Tina Ambani was once a leading actress in the industry. He expanded his entertainment business by partnering up with a Hollywood director, Steven Spielberg.
  • He also owns the largest multiplex chain, Adlabs, with 700 screens in India and abroad in 2008. Anil has a fleet of luxurious cars worth $3 million, a yacht named Tian worth $56 million, and even jets, helicopter a luxurious apartment in a posh area in Mumbai.
  • He even made risky investments in his power and infrastructure unit despite G.M.R, G.V.K, and Tata Group biding aggressively for new projects.
  • Not only did Anil bid for contracts in railway, power, and roads but successfully secured three mega power projects, which included projects in Sasan(M.P), Tilaiya(Jharkhand), and Krishnapatnam(Andhra Pradesh)  auctioned by the government in 2008-09.

The Downfall of Anil Ambani

  • The decision of not sticking to any business, in the long run, affected his business. The trouble for Anil started back in 2008. When he decided to merge RCom with South Africa’s MTN, his brother Mukesh Ambani threatened to sue him, claiming his right of first refusal. On January 23, 2008, Reliance Infrastructure was given a 30 year-build-operate-transfer PPP contract, but 5 years later the company communicated to DMRC that they will not operate the line beyond 30 June 2013.
  • One of the many bad decisions taken by him was a constant brush with controversial deals like the Rafael deal and the 2G Scam. Anil had no prior knowledge of The naval industries yet he took debt and invested in it.

The junior Ambani was given the Rafael contract despite being a new entrant in the defense sector. The deal was given to him bypassing the venerable public sector enterprise Hindustan Aeronautics Limited. Anil was selected as a partner by an experienced defense manufacturer because his company was registered with the Ministry of Corporate Affairs and had land in Nagpur, giving access to the runway. It is said that the company was registered 12 days before the announcement made by Priminister of India about buying 36 Rafel from France. Anil’s involvement in the defense business and taking a loan to buy a non-functioning shipyard was a decision taken by him, which rolled him to debt. He did not consult any of the experts before taking a huge debt for this capital-intensive firm.

  • Anil was dragged into the 2G accusations in 2011 and was questioned by CBI  amidst accusations that Raja, a person of DMK favored his Reliance communication to get a dual technology permit.
  • Anil’s dependence on debt for capital and his autocratic way of functioning affected his business.

Anil was also caught up in a legal warrant when he failed to pay dues to Ericcson AB’s Indian Unit. The Supreme court of India threatened to put him behind bars if failed to clear the Outstandings. It was then, Mukesh Ambani helped him make a payment of ₹ 453 crores to Ericsson. Even after being in a situation that could have landed him in the prison, Anil decided to sail on two boats and continued to invest further. 

  • Anil’s choice of taking risks but unable to succeed showed that he was excellent at envisioning but lacked the execution discipline to bring the idea to fruition.

The Export-Import Bank of China, Industrial and Commercial Bank of China, and China Development Bank sued Ambani for defaulting a loan, that was provided to Reliance Communications in 2012. According to the three state-controlled Chinese Banks, Reliance Communication had to clear $90,000 million, the highest amount demanded from the company which became Bankrupt. It was this incident because of which Ambani was no more considered to be one of the billionaires, despite him still having a net worth of $1.7 billion. His Telecom business was dramatically affected due to the change of policy concerning the grant of the spectrum by the Indian Government also. Anil’s choice of taking risks but unable to succeed showed that he was excellent at envisioning but lacked the execution discipline to bring the idea to fruition. 

  • Even after filing his company as insolvent, he was asked by the London court to pay $656 million to which Anils’s lawyer, Robert Howe, argued that the court cannot ask his client to pay an impossible amount. According to Robert, on taking Anil Ambani’s liabilities into account, his investment dropped below $100 million. The Ambani in his defense agreed to give a non-binding personal letter to the UK court. Anil also said he never gave any guarantee tied to his assets. When asked to take aid from relatives, Anil was sure he would not be supported financially by any of his Kith and Kin. 
  • The Junior Ambani was listed sixth in the Forbes billionaire index with a net worth of $42 billion in 2008 saw a huge downfall in just 12 years and filed bankruptcy declaring himself with zero net value.

Conclusion

The main reason for Anil’s Failure was his aggressiveness, dependence on debt, and chaotic diversification of Industries. Anil would have been successful as his brother if he focused fully on Rcom. On making Rcom profitable, he could have taken loans for diversifying his business. It would have been beneficial for Anil if he invested in the projects about which he had prior ideas and expertise. He had a chance to earn profits on many projects but due to his pattern of not sticking into business for long, he became responsible for his downfall.

Also Read: Top 10 Richest Indians to Watch For in 2021

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Kiara Dutta
Kiara Dutta comes from an Engineering background, with a specialization in Information Technology. She has a keen interest and expertise in Web Development, Data Analytics, and Research. She trusts in the process of growth through knowledge and hard work.

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