How Anil Ambani Will Weather Another Debt Crisis; Will Brother Mukesh Help Again?

Anil Ambani-controlled Reliance Group’s major financial services businesses have faced back-to-back downgrades from rating agencies CARE and ICRA, amidst the fear over the debt repayment abilities of the group as well as the individual companies. Reliance Commercial Finance (RCF) and Reliance Home Finance (RHF) were downgraded by the rating agencies on Sunday. ICRA earlier downgraded Reliance Capital’s commercial paper.

The latest report is that Reliance Capital (RCap) is planning to bring in strategic investors in RCF and RHF to save the companies. According to Business Standard newspaper, Blackstone, Carlyle, Brookfield, and Piramal group are in talks to buy a large stake in RHF. RCap owns 51 percent in RHFL.

The financial services businesses of Anil Ambani are facing crises as the rating agencies doubt the group’s ability to repay the debts. In some cases, they indicate at the possibility of defaults as it happened in IL&FS and DHFL. What does it mean for the Ambanis?

In March, the chairman of Reliance Group Anil Ambani evaded the jail term by a whisker for not paying the dues to Ericsson. His elder brother Mukesh Ambani paid around Rs 460 crore to Ericsson, the operational creditor of Anil’s firm Reliance Communications (RCom), from his personal wealth to bail out the brother. Anil Ambani publicly thanked his elder brother for the gesture, issuing a statement saying, “My sincere and heartfelt thanks to my respected elder brother, Mukesh, and Nita, for standing by me during these trying times…”

After the demise of father Dhirubhai Ambani, Mukesh and Anil Ambani had fought for the Reliance Empire and the family business was eventually divided in 2005, with the mediation of mother Kokilaben Ambani. But, there was a slew of court battles and public spats after the split. Finally, in 2010, following the Supreme Court verdict in the KG basin gas dispute – in which Mukesh Ambani won against the brother – the siblings patched up.

About three years ago, RCom started defaulting on its repayments on a debt of Rs 45,000 crore and therefore planned to sell off assets like tower, optical fibre and land to pay off the debt, as it is reportedly doing right now with the housing finance business. But RCom’s plans failed. This is when Mukesh first saved his brother. His company Reliance Jio agreed to buy the RCom’s assets. Jio had announced a Rs 23,000-crore deal in December 2017 and completed the purchase of media convergence nodes and fibre for Rs 5,000 crore last year. But the spectrum sale got stuck after the telecom department sought bank guarantees. Ericsson went to court around this time. RCom, which failed to make loan repayments, filed for bankruptcy in February.

The market is eagerly watching whether the elder brother will come for the rescue of Reliance Capital and its associate subsidiaries. Seven asset management companies (AMCs) are exposed to the three non-banking finance companies of Anil Ambani across 62 schemes, besides two mutual funds, which have exposure to the downgraded companies.

CARE downgraded RCF’s long term bank facilities of Rs 12,700 crore to ‘D’ from ‘BBB+’ on April 26 and Rs 5,000 crore worth debt to ‘C’ from ‘BBB+’. The ‘D’ rating means, it’s either in default or expected to default soon. The rating agency cited rescheduling of non-convertible debentures (NCDs) and delays in repayment of bank loan facilities as the reasons for the downgrade. It added that the “liquidity profile of the group continues to be under stress on account of delay in raising funds from the asset monetisation plan and impending debt payments.” CARE also downgraded long term debt worth Rs 4,980 crore of RHF from ‘BBB+’ to ‘D’; debt worth Rs 12,320 crore from BBB+ or BBB category to ‘C’. On April 26, ICRA downgraded Reliance Capital, RCF and RHF commercial paper from A2 to A4.

Reliance Group said that ICRA’s rating action is “unjustified and unwarranted and with an illusory review process.” Reliance Capital had a debt of Rs 46,400 crore at the end of March 2018. The consolidated total income of Reliance Capital had increased by 12.8 per cent to Rs 19,898 crore in the last financial year, while profit reduced by 1 per cent to Rs 1,234 crore.

Anil Ambani’s elder son Jai Anmol Ambani is in charge of the financial services vertical as the executive director. He has been working with the business since 2014. In September last year, Anil Ambani said the company is aiming to reduce its debt by exiting all the non-financial businesses in its portfolio in the next 12-18 months. He wanted to build the financial services business as it was considered to be his forte since he joined business. The market is keenly watching how Ambani will weather this debt crisis.―Business Today