Anil Ambani's Downfall From the Billionaire's Club
A deep dive into what led to the downfall of once the world's sixth richest man in 2008
Once among the world's richest men, Anil Ambani is leading a crumbling empire today. Surrounded by billions of debt, the latest nail in the coffin for a once billionaire was when the equity value of his total business crashed to $523 million. Notably, the value of his un-encumbered equity, excluding invoked and pledged shares, is even lower at $109 million.
In 2006, the man's wealth was amounted $42 billion and even until 4 months back, The Reliance Group was valued at over INR 8,000 crore. But that was before lenders invoked shares in his firms due to payment defaults. Ever since his empire has shrunk significantly. Here's a look at what led to the downfall of Anil Dhirubhai Ambani Group, commonly known as the ADAG:
Dilution of Shares
The past few months have been rough for the Reliance scion. While his company had lost close to 90 per cent of its total market capitalization in the last years, he recently had to sell off 42.88 per cent stake in mutual fund joint venture, Reliance Nippon Life Asset Management (RNLAM). Adding on, Reliance Communications (RCom) filed for bankruptcy on May 31.
Reportedly, after the mutual fund business, the group is also looking to sell its general insurance unit. In a recent press conference, Ambani blamed "unwarranted rumour-mongering" for the sharp fall in shares of his group firms, RPower and RInfra. On the contrary, a leading daily blamed the higher level of pledging of promoter's stake in group companies and their invocation by lenders as the key reason for the business' value erosion.
Repayment of Debts
After a failed attempt at selling Reliance Communication (RCom) to his brother, Mukesh Ambani, the Reliance Group's lead Anil Ambani was forced to meet debt obligations through asset monetization. He claims to have repaid over INR 35,000 crores in loans in the last 14 months and said that the future payment obligations would be met in a timely manner.
Soon after Ambani gave off the station of debt repayment, Price Waterhouse & Co Chartered Accountants LLP (PwC) resigned as auditor of Reliance Capital and its Reliance Home Finance, alleging diversion of funds and fraud. The auditors' exit negatively affected RCap's share which fell seven per cent in early trade the next day.
Stating in a letter dated April 24, PwC alleged that Reliance Capital disputed the highlighted observations and did not convene an audit committee meeting within the expected time and even warned to initiate appropriate legal proceedings against the firm. Responding to the claims, Reliance Capital assured that, "The company has duly responded to the various queries and letters of PWC."
Surprisingly, soon after PwC quit, Reliance Infrastructure's auditors also pointed out several irregularities in its balance sheet. "We were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these standalone annual financial results," the auditors' Pathak H D& Associates noted in a letter enclosed with the quarterly results of the company.
Soon after the development, Reliance Infrastructure reported its biggest quarterly loss ever of INR 3,301 crore, on making impairment and write-offs worth over INR 8,500 crore. Things were settling only when Bloomberg reported said that Chinese lenders, including China Development Bank, Industrial and Commercial Bank of China and Exim Bank of China have demanded at least $2.1 billion from RCom.
According to its filing, the state-owned China Development Bank is the biggest lender to Reliance Communication with loans worth INR 9,860 crore, followed by the State Bank of India at loans worth INR 4,910 crore. Exim Bank of China has sought payment of INR 3,360 billion whereas Industrial and Commercial Bank of China has claimed INR 1,554 crore of debts.