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Anil Ambani's struggle not over after rescue by brother

Entire Reliance Group faces debt crisis despite signs of peace between siblings

MUMBAI -- The long sibling rivalry between Indian businessmen Mukesh and Anil Ambani seemed to reach a truce when Mukesh provided emergency funding this week that saved his younger brother from a jail sentence for failure to repay debt.

But Anil Ambani's struggles to keep his version of the Reliance conglomerate afloat remain far from over, and further interactions -- if not battles -- with his far more successful brother are likely to come.

It was regarded as a historic reconciliation when Mukesh Ambani agreed in December 2017 to buy mobile spectrum, a nationwide fiber-optic network and other assets for an estimated 240 billion rupees ($3.49 billion at current rates) from Anil's Reliance Communications, a deal that meant Anil's withdrawal from the consumer mobile telecom business.

Because the rapid advance of Mukesh Ambani's Reliance Jio Infocomm through aggressive low-price tactics had been a primary factor driving RCom into a financial crisis, the agreement looked like an all the more dramatic turn of their relationship.

India's Department of Telecommunications was about to grant an approval for the deal in December 2018, until Jio sent a letter to the regulator seeking assurance that it would not be held liable after the spectrum purchase for any of RCom's past dues to the government related to the spectrum.

The department refused to give the assurance, citing a regulation that lets the government ask the seller, the buyer or both to pay any past dues linked to the spectrum. The deal stalled, eventually leading the brothers to call it off Monday, the same day that Mukesh Ambani saved Anil from imprisonment.

The deadlocked spectrum deal was a major reason for RCom's failure to pay 5.5 billion rupees owed to Swedish supplier Ericsson. The Supreme Court of India found Anil Ambani guilty of contempt of court Feb. 20 and threatened to put him in jail for three months unless he paid the remaining money owed by March 20.

The stalled deal also provided a final push for RCom's decision Feb. 1 to file a voluntary insolvency petition to the National Company Law Tribunal, the country's bankruptcy court system.

In view of these developments, one may well suspect that Mukesh's intention has always been to obtain a spectrum for a discounted price in a bilateral deal, rather than in an auction, observers said on Wednesday. Many now predict that Mukesh Ambani will participate in RCom's insolvency proceeding to purchase the spectrum, as the Supreme Court had ruled that a family member of the owner of an insolvent company can bid in asset auction in the process.

Perhaps his elder brother's true intentions do not matter much to Anil Ambani, who faces a lot more work in order to save his entire Reliance Group from a complete dissolution.

The current Reliance Group comprises five listed companies: Reliance Communications, Reliance Infrastructure, Reliance Naval and Engineering, Reliance Power and Reliance Capital. Anil's group was spun off in 2006 from the older Reliance group, which was founded by his father, Dhirubhai Ambani.

But Reliance Communications is not the only member facing an insolvency crisis. Last fall, multiple creditors of Naval and Engineering filed insolvency petitions to the company law tribunal as the shipbuilding and heavy industry company fell into negative equity of 4.87 billion rupees as of September, with accumulated losses and defaults.

The aggregate gross debt of the group's four listed nonfinancial companies, including Communications and Naval, totaled 1.15 trillion rupees as of September. Credit Suisse estimated in February that this debt equals 17 times their annualized earnings before interest, depreciation and amortization.

Anil Ambani aims to save the group by selling parts of it. Reliance Nippon Life Asset Management, a listed joint venture between Reliance Capital and Nippon Life Insurance, is one candidate. Each of the two parents holds a 42.88% stake, and Reliance Capital reportedly has proposed selling its share to Nippon Life. The Japanese insurer has not responded yet, according to sources.

Reliance Infrastructure engages in projects such as metropolitan transportation along with power generation, transmission and distribution. Reliance Power builds plants and operates coal, gas, solar and wind energy sites. Anil Ambani may consider spinning off parts of those two heavy-duty businesses to raise funds for repaying the huge group debt.

In an emotional statement, Anil Ambani expressed his "sincere and heartfelt thanks" to his "respected elder brother, Mukesh, and [his wife] Nita -- for demonstrating the importance of staying true to our strong family values by extending this timely support." He added that "we have moved beyond the past."

Yet it must have been humiliating for the RCom chief to accept his brother's mercy to avoid imprisonment.

Mukesh and Nita Ambani originally founded Reliance Infocomm, the conglomerate's first telecom business, in late 2002, soon after the death of their father that year. The 2006 split of the older Reliance group into two by the inheriting brothers gave the telecom business to Anil, who immediately changed the division's name to Reliance Communications.

But the older brother did not give up his dream of establishing a successful information and communications technology business, and he started a mobile telecom operation under the name Jio Infocomm.

Such history makes the rescue look more like a symbol of Mukesh's victory over his younger brother in the ICT business rather than a long-term peace, though the upcoming insolvency process may reveal the truth.

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