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Old 5th June 2020, 18:02   #1
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Default Anil Ambani's downfall - The consequences of bad decisions & excessive debt

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Anil Dhirubhai Ambani was listed by Forbes in 2008 as the world's sixth-wealthiest person. Eleven years later, the 59-year-old is fighting to save his reputation and a possible jail sentence.

An appellate tribunal on Friday refused to direct State Bank of India and other lenders to Reliance Communications to release Rs 260 cr of tax refunds, held in a trust fund, a sum needed to pay the firm's dues to Ericsson.
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Anil Ambani's downfall - The consequences of bad decisions & excessive debt-20190930t080432z_1436012712_rc1d32f9adb0_rtrmadp_3_reliancecapitallendingmin20835169221590166740.jpg

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Anil Ambani-promoted Reliance Infrastructure has, at the consolidated level, defaulted to the tune of Rs 3,315 crore. The company’s annual report for FY20 stated that it has defaulted on payments of both interest and principal to various lenders.

In notes to its consolidated results for FY20, the list of debt on which it has defaulted, or has delayed payments, includes 33 different lenders and non-convertible debenture (NCD) series. The duration of default ranged from 1 day to 640 days. The duration of delay, meanwhile, ranged from 89 days to 304 days.
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Lenders of Reliance Naval and Engineering Ltd have sought expressions of interest (EoIs) from buyers to acquire the bankrupt shipbuilder under the insolvency and bankruptcy code.

The second Anil Ambani-controlled Reliance Group firm to go for insolvency after Reliance Communications Ltd, Reliance Naval was admitted for insolvency proceedings on 15 January by the Ahmedabad bench of the National Company Law Tribunal, nearly 16 months after IDBI Bank first dragged Reliance Naval to the bankruptcy court. The bank had claimed dues worth Rs1,159.43 crore.

Reliance Naval has defaulted on loans worth Rs9,492 crore, the company disclosed to stock exchanges in January.
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India’s largest electricity generator NTPC Ltd is eyeing Anil Ambani’s Delhi power distribution units after three groups have already submitted non-binding bids for Reliance Infrastructure Ltd’s BSES Rajdhani Power Ltd (BRPL) and BSES Yamuna Power Ltd (BYPL), Reuters reported. “NTPC is keen to explore the opportunities for acquiring 51% stake in BRPL and BYPL, which are on sale,” the New Delhi-based NTPC said in a letter to the Delhi Electricity Regulatory Commission dated 26th May 2020. For now, Reliance Infrastructure owns a majority stake in BSES Yamuna and BSES Rajdhani, which are joint ventures with the government of Delhi.

The Anil Ambani-run troubled Reliance ADA Group is looking to reduce its debt by selling stakes in the companies held by it. The group has already sold its Mumbai electricity distribution business to Adani Transmission in 2018 for Rs 18,800 crore. In its March quarter results, Reliance Infrastructure said that the company “aims to be zero debt in the next financial year based on liquidity events”.
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In the meantime, the problems keep piling up. Another of Anil’s companies, a defense contractor he hoped would lead a turnaround, has entered bankruptcy. At a September shareholder meeting, a lawyer who said he’d lost most of the money he put into Anil’s businesses berated him with angry criticism and said he would try to put together a class-action investor lawsuit, though none has yet materialized. Anyone looking for a piece of Anil’s diminished fortune will have to get in line. He’s being pursued by more than a dozen creditors. Among them is a group of three state-controlled Chinese banks that loaned $925 million to Reliance Communications to build its new network in 2012 and recently sued him in London, claiming he personally guaranteed the debt.

In a February hearing, Anil argued he never provided a personal guarantee and had nothing to give the banks anyway. He said his current personal assets amounted to $9 million, set against liabilities of more than $300 million. Judge David Waksman, however, expressed doubt that Anil’s financial situation was really so dire. Given his access to a private jet, a yacht, and an 11-car motor pool, “there is good reason to suppose he is not being frank,” Waksman said. Besides, the judge continued, there was always the possibility of more assistance from Mukesh; any suggestion Anil’s brother couldn’t afford to help would be “absurd.”

In a statement read to the court, Anil disagreed. The fraternal bailout, he argued, was an event that wouldn’t be repeated. “I confirm I have made inquiries,” he said, “but I am unable to raise any finance from external sources.”
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Old 5th June 2020, 19:57   #2
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Default re: Anil Ambani's downfall - The consequences of bad decisions & excessive debt

Excessive debt was the bad decision. He diversified into businesses with good future prospects like power, defense, infrastructure and home finance. But he did not give too much attention to the debt part. For example, let's take the power business - there is nothing wrong with power generation business. Power generation PSUs like NTPC, NHPC, NLC India etc are hugely profitable. NTPC clocked Rs. 16,000 cr profits in FY18. All because NTPC did not go overboard with debt.

See, a 1000 MW coal power plant costs around Rs. 4,000 cr approximately. Unfortunately, Anil Ambani took Rs. 3,000 cr as bank loans and put up only Rs. 1,000 cr as equity. Had he done the reverse - Rs. 3,000 cr as equity and Rs. 1,000 cr as debt - he would have had a successful business in Reliance Power.

Meanwhile, big brother Mukesh Ambani is on the right path. He is cutting down net debt to zero by raising equity via stake sales in Reliance Jio.

Last edited by SmartCat : 5th June 2020 at 20:01.
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Old 5th June 2020, 20:02   #3
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Default re: Anil Ambani's downfall - The consequences of bad decisions & excessive debt

I am not in a position to comment on the way he ran his businesses and made his investment decisions. Clearly he has messed things and is beyond his depth now. From 2006 to 2016 he was my client. And a good client who paid on time without needing follow up. As an MSME it was common for me to end up wasting time chasing big companies for dues but rarely with Anil's group. Once many years ago we had a bollocker of a screw up yet he stood by my little business and gave us time to resolve what had become a complex matter and we continued our business relationship for years afterwards. I cannot say what he was like to deal with for his employees or bankers.

I can only try and imagine what a tough task it must be to cope with such a fall from grace.

Last edited by V.Narayan : 5th June 2020 at 20:04.
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Old 5th June 2020, 20:05   #4
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Default re: Anil Ambani's downfall - The consequences of bad decisions & excessive debt

Biggest problem was he got the telecom business but did not concentrate on quality. Reliance telecom became a joke back in 2006-10 era. Everyone was complaining about bad quality and inflated bills. If he had concentrated on customer service then probably his telecom company would have been best in India and story would have been different.

Debt alone is not the root cause, if it was then most companies in India would go under. Second reason is in his business there was no single company that was the cash cow e.g. in Tata group it is the TCS. Remove TCS and most of the group would get crushed under debt.

In Reliance Jio it is the petrochemical arm that is the cash cow.
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Old 5th June 2020, 20:09   #5
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Default re: Anil Ambani's downfall - The consequences of bad decisions & excessive debt

Just like Sanjay Dutt, Anil Ambani is another "king of bad decisions". He should've remained a no.2 to big brother instead of splitting, investing in all the new businesses, spreading himself & his management too thin and ending up with so much debt.

If you want to see an exceptional video summarising the entire saga, watch this video by the talented folks @ Bisbo.

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Old 5th June 2020, 21:42   #6
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Default Re: Anil Ambani's downfall - The consequences of bad decisions & excessive debt

Death by debt.
Such heavy debt burden forced VG Siddhartha, CCD founder, to take another bad decision of ending his life.
Thankfully Anil D ambani has a brother who can share some load and has already helped him in paying some of debt and avoid jail term.
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Old 8th June 2020, 08:45   #7
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Default Re: Anil Ambani's downfall - The consequences of bad decisions & excessive debt

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Thankfully Anil D ambani has a brother who can share some load and has already helped him in paying some of debt and avoid jail term.
10 years back, it would have been quite unimaginable that Dhirubhai Ambani's son would be staring a jail-term in the face, but that became a fact. Mukesh Ambani bailed him out, and not easily. From an excellent Bloomberg Article that I read on Sunday:

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The indignities began on the first day. Anil arrived early but for some reason didn’t have a seat, and he spent hours standing against a back wall. With the court enforcing a policy against using air conditioning in winter, and the bodies in the room driving the temperature to sweltering heights, he grew wan and disheveled, first removing the jacket of his excellently tailored suit and then his tie.

The two judges listened impassively as Anil’s lawyers argued that his promise Ericsson would be paid was contingent on an asset sale that had never been concluded. After they finished, he left without saying a word to the reporters shouting questions.

Anil returned a month later for the ruling, this time occupying a seat. The two judges entered, and Justice Rohinton Fali Nariman read the verdict: guilty. For a moment it seemed that guards might take Anil directly to jail from the courtroom. But then Nariman reached the final point of the decision. “We are of the view,” he said, “that the contempt of this court needs to be purged by payment.” Anil, he continued, would be given a month to nullify the case by handing over the cash. The ruling shocked Anil, according to a person with knowledge of his reaction. He was so accustomed to getting his way, the person said, that he’d never expected the court to rule against him.

After round-the-clock negotiations that continued until days before Anil was to be taken into custody, he and Mukesh reached a deal. In a press release announcing the breakthrough, Anil was quoted thanking his brother for “staying true to our strong family values.” In exchange for Mukesh’s cash, people with knowledge of the agreement said, he surrendered a pair of 99-year leases on office buildings in Mumbai. Although the statement included several quotations from Anil, it had been drafted by Mukesh’s side, according to one of the people. The person said it wasn’t shown to Anil before it was published.
I think Indian industrialists have also gone through a "change in mindset". 10 - 20 - 30 years ago, if you couldn't pay back a PSU bank loan, it was okay. There were many ways to drag the proceedings or even bury the case altogether (no doubt, used by wilful defaulters). But in the last 5 years, it has become a prison-able offence.

Last edited by GTO : 8th June 2020 at 08:46.
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Old 8th June 2020, 08:53   #8
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Default Re: Anil Ambani's downfall - The consequences of bad decisions & excessive debt

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Originally Posted by GTO View Post
From an that I read on Sunday:
The contents of this article are shocking. I was of the impression that Mukesh had intervened at the last minute, possibly at the behest of his mother, to help his brother and stop him being jailed. All statements issued pointed towards this, and some ‘experts’ even indicated this as a sign of thaw and improved relationship between the brothers. Never knew there were drawn out negotiations and that he actually took his pound of flesh.
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Old 8th June 2020, 09:17   #9
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Default Re: Anil Ambani's downfall - The consequences of bad decisions & excessive debt

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I think Indian industrialists have also gone through a "change in mindset". 10 - 20 - 30 years ago, if you couldn't pay back a PSU bank loan, it was okay. There were many ways to drag the proceedings or even bury the case altogether (no doubt, used by wilful defaulters). But in the last 5 years, it has become a prison-able offence.
Sometime after bank nationalisation some people realised that ticket to access to no need to pay back bank loans was to buy/ keep on retainer a politician. Due diligence had to be done only in choosing the politician.

But to paint every businessman unable to pay back his loans as a crook is also not right. But plays into the larger story that all businessmen are crooks, and the reason for our economic problems.

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Old 8th June 2020, 09:48   #10
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Default Re: Anil Ambani's downfall - The consequences of bad decisions & excessive debt

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Originally Posted by GTO View Post
I think Indian industrialists have also gone through a "change in mindset". 10 - 20 - 30 years ago, if you couldn't pay back a PSU bank loan, it was okay. There were many ways to drag the proceedings or even bury the case altogether (no doubt, used by wilful defaulters). But in the last 5 years, it has become a prison-able offence.
Well said. All the industrialists who stood out as icons back in the day had crazy amount of debt written off. Those who thrived on this concept in the last decade have more or less wound up businesses and are staring at proceedings under the insolvency and bankrupt code.

Here's how wilful defaulters are sometimes treated: Link. . Sharing since it's relevant to the auto industry.
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Old 8th June 2020, 10:38   #11
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Default Re: Anil Ambani's downfall - The consequences of bad decisions & excessive debt

In my view, Anil's downfall started when he broke the cardinal rule of business - appear apolitical. His very visible support and friendship with a political party, meant that as soon as they lost power, support for him was pulled and risky decisions soon turned into a quagmire, riling the group with mounting debt and little support in terms of policy and government patronage. (most of his bets were in highly regulated areas such as Power, Defence etc.)
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Old 8th June 2020, 11:41   #12
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Default Re: Anil Ambani's downfall - The consequences of bad decisions & excessive debt

What happens next? Will he run away? After some time they somehow escape public attention and continue to live as if nothing happened. Look at Subrato Roy. The last I heard was the Supreme Court had refused to give him bail until he deposited 20k crores to SEBI. Most of us have no idea about his present status. There is news that Mallya is being brought back. I don't know what the courts will do.
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Old 8th June 2020, 12:22   #13
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Default Re: Anil Ambani's downfall - The consequences of bad decisions & excessive debt

Over diversification. This is what comes to mind. There are very few companies that can manage a finger in many pies. For that you must have great management bandwidth and a long, stable history of top class management and processes. The examples that come to my mind is GE, Tatas etc. He got into too many Mega things, too quickly and too aggressively and paid the price.
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Old 8th June 2020, 14:51   #14
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Default Re: Anil Ambani's downfall - The consequences of bad decisions & excessive debt

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Over diversification. This is what comes to mind.
Exactly. Too much diversification in very little time. Obviously diversification is great if your other businesses are generating great profits and you pool in your money in different sectors and reduce the risks and increase the oppurtunities . But taking big loans & diversifying into new businesses is no good idea.

A basic concept taught in management schools is leverage management. If equity is less & debt is high & business is doing good then great profits but if business is not doing good means terrible losses.
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Old 8th June 2020, 16:12   #15
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Default Re: Anil Ambani's downfall - The consequences of bad decisions & excessive debt

I admire Anil, he dreamed big. All of his companies pay better salaries to employees than rivals. The two discoms of his in Delhi pay salaries on par with the DESU employees which Tata Power run TPDDL does not. He has always been the first in implementing new technologies in business. He has always been supportive to smaller companies and vendors as I have heard many stories attesting to it.

His involvement with a political party ruined him just like Sahara, which was the most trusted NBFC in the country. Although, Sahara's have stopped paying pre maturely but have yet not failed in payments on maturity to their individual customers. Anil is down but he is not out.

Last edited by GTO : 9th June 2020 at 07:22. Reason: Typo.
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