Ambani wants to buy Ambani
There can be little doubt that the Ambanis, with their keen business acumen and garish opulence, have long been the first family of Indian business. But even a cursory glance at newspaper headlines over the past year would tell you that not all Ambanis have been privy to this stellar success. While Mukesh Ambani has made a habit of appearing on global rich lists and striking all-cash deals with international big shots, his brother Anil has been less than lucky!
The bitterly estranged brothers saw their respective businesses go in the opposite directions as Anil Ambani's Reliance Communications fell hard from its former glory, prompting elder brother Mukesh to come to his aid.
In 2019, Mukesh Ambani's bid to bail out RComm with last moment financial aid played out like a sentimental soap opera in the media. The public seemingly lapped it up as the elder brother stepped up to pay the dues that RComm owed to Ericsson, effectively saving Anil from jail time.
In 2020, with the latest round of bidding for RComm, Mukesh Ambani's flourishing telecom venture Reliance Jio has once again stepped up with a bailout package for his brother's ailing firm. Reliance Jio emerged as the highest bidder alongside UVARC for Reliance Communications asset recently, and the the lenders of RComm cleared the deal on 5th March.
Ambani buying Ambani has been in the works for a while now, and it finally seems to have come through.
The Ambani Family Feud and the Split
The Ambani brothers parted ways in 2005, three years after the death of their father Dhirubhai Ambani. Their mother Kokilaben mediated the settlement between her two sons as the assets of a legendary industrialist were divided up into two new business empires.
Anil Ambani was handed the glorious Reliance Communications (RComm), riding high on the back of the illustrious Reliance name and the burgeoning growth of the telecom sector.
Mukesh Ambani, who had always demonstrated a shrewd sense for the telecom business, left the table with a promise to stay away from the sector for at least ten years.
While Anil Ambani ended up with most of the service industry assets, Mukesh Ambani inherited the manufacturing side of their father's business. Mukesh Ambani strove to grow the flagship Reliance businesses of oil refining and petrochemicals, while Anil Ambani worked his way to the top in financial services, telecom, and power generation.
Mukesh Ambani entered the telecom sector in 2015, well after the non-compete with RComm elapsed. His Reliance Jio took the space by storm, as it fuelled the fire of India's affair with the internet, and effectively established itself as the top player in our country's fragmented telecom industry.
Today, the history of Indian telecom is broadly divided into two time periods: pre-Jio, and post-Jio, summing up what Mukesh Ambani's business move has meant for the sector at large. Interestingly, around the same time, Anil Ambani found his business unraveling into a terrible mess, paving the way for a ruin that would come for him soon.
The Ruin of Anil Ambani
The story of Anil Ambani's fall from the towers of glory can perhaps serve as an excellent cautionary tale for all those who think fortunes are made to last. Once a regular on the Forbes global rich list, this businessman has now gone on record to say that his worth is nothing.
What spelled trouble for the younger Ambani and triggered his fall?
The tangles of the telecom industry are to be blamed for his eventual ruin, and the insolvency of the once glorious Reliance Communications. Several telecom majors have been struggling for a while now, in the wake of piling spectrum dues, and increasing competition.
Around the middle of the the recently ended decade, Reliance Communications started feeling the pressures of mounting competition.
As more and more carriers entered the Indian market, and frequently poached subscribers from one another, it became increasingly difficult for RComm to retain profitability. It continued to take on more debt to finance its operations, which only made its cash situation much worse than it was. It was unable to generate enough revenues to finance the debt it had raised, triggering a spiral of disaster for the telecom major.
The entry of Mukesh Ambani's Reliance Jio was possibly the last nail on Reliance Communication's coffin, albeit not indirectly.
The introduction of Jio's 4G services, unbelievably low tariffs, and unprecedented customer acquisition rates jolted the established telecom players off their cushy thrones. Subscribers thronged to Jio, and the rapid proliferation of cheap data services forced competitors to mirror its moves. Already straining under the weight of debt and spectrum fees it had already defaulted on, Anil Ambani's RComm was in no position to defend itself against Jio's blitzkrieg against telecom players.
Jio's dues to Ericsson, a Swedish firm producing telecom gears, eventually dragged Anil Ambani to court. As the drama unfolded, RComm's ruin was laid bare for all to see.
The company simply could not afford to pay the dues anymore.
In 2017, Mukesh Ambani made a bid to buy out his brother's firm, as signs of healing began to surface in their strained relationship. Unfortunately, however, the lack of unanimity among the RComm lenders brought the deal to nought. As the situation worsened, the turn in his business fortunes brought Anil Ambani to the doorsteps of prison, till Mukesh Ambani stepped in, in a seemingly heroic attempt to save his brother.
Reliance Jio bid For RComm Assets
Rumour has it that it was Kokilaben who stepped in yet again to get Mukesh Ambani rescue his brother from imprisonment in 2019. This time around Reliance Jio's management has made a business decision to buy out Reliance Communications along with the UV Asset Reconstruction Company Limited. With 100% from the lenders, the deal has finally come through, with Chinese lenders to RComm due to receive payouts soon.
Reliance Jio bid for access to the tower and fiber assets of Reliance Infratel Limited, a subsidiary of Reliance Communications for a value of about ₹4,700 crores.
UVARCL agreed to put up ₹14,000 crore for the spectrum, real-estate assets and enterprise and data centre ventures owned by Reliance Communications and RITL.
This move does not make poor business sense, but it isn't necessarily a deal that Mukesh Ambani would have normally jumped on either. Jio can make decent money off the tower rights of Reliance Communications, and good use of the fiber assets, and they have not exactly paid too high a price for any of it. But, despite the clear financial motive that may have guided the deal, it was possibly triggered more by familial affection than simply good business sense. Of course, Mukesh Ambani would not be Asia's richest man by making decisions based on emotion alone, but it cannot be denied that fraternal responsibility might have played a role in the finalising of the deal. The lenders also finally agreed to the bailout package, meaning that Anil Ambani can finally breathe a little easier even if he can't reclaim his spot in the sun right away.
Ambani buying Ambani has been a long drawn affair, with fraternal aid and a matriarch's intervention calling the curtains on this episode of Indian business drama. This deal is set to give Anil Ambani some much needed breather from the court case filed by the Industrial and Commercial Bank of China. However, his troubles are far from being over, as he recently declared that he does not have much left of his once hefty net worth. In fact, as he stated to a court of law, his current value is zero. At this point, one can only wait and watch what he does to reinvigorate his career and jumpstart his way back to success.
Will it be the elder brother to the rescue again? Only time will tell.