Anil Ambani has been told to pay Ericsson Rs 453 crore by Tuesday or face jail.
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.
The order passed by National Company Law Appellate Tribunal is a setback for RComNSE 10.00 %, which must pay the Swedish telecom gear maker its remaining dues of Rs 453 crore by Tuesday to ensure Ambani doesn’t go to jail. The telco has already paid Rs 118 crore of the total Rs 571 crore in due.
The court’s decision comes after a tough year for Ambani, as he saw his empire crumbling to a brutal war in the telecommunications market triggered by the entry of his elder brother Mukesh Ambani’s brainchild Jio.
It’s ironic that the junior Ambani had to fight a bitter battle with his older brother for the ownership of the telecom business, a high-profile dispute after the death of their father in 2002 without a will. Prior to the patriarch’s death, the Ambani brothers served as executives at their father’s company. Three years after their father’s passing, the dispute was settled by splitting the empire into two, vaulting both Ambanis among the ranks of India’s wealthiest businessmen.
The founder’s death left the sons in charge of the massive family business just as India was about to enter a growth spurt powered by a newly upwardly mobile middle class. Even as Anil’s star has faded, his older brother Mukesh has gone on to become Asia’s richest man.
Split out in the open
When the family feud was settled in 2005, Mukesh got control of the flagship oil-refining and petrochemicals business. Anil got the newer businesses such as power generation, financial services and a telecom business, a prime growth prospect then.
From there, Anil’s companies borrowed heavily to diversify and build a credible conglomerate that could generate the kind of revenue enjoyed by Mukesh’s refining firm Reliance Industries Ltd.
The telecom tangle
A non-compete clause between the brothers kept Mukesh out of telecom until the agreement was scrapped in 2010. The elder brother’s return to telecom resulted in Jio, which built a nationwide 4G wireless network.
At the same time, the younger Ambani brother was facing intensifying competition in the fast-growing wireless-phone business. As carriers fed off each other’s subscribers, Reliance Communications raised borrowings to keep up. Still, the carrier lost its rank as the No. 2 carrier in a slide that accelerated when Mukesh fatefully barged into the market. Jio’s entry into the market in 2016 pressured all rivals, including Anil’s company, because it lured so many of their customers away with free calls and cheap plans.
“Telecom was a tale of disaster for Anil owing to cutthroat competition, which led to industry-wide consolidation and debt overhang,” Mumbai-based Alok Shende, principal analyst at consulting firm Ascentius Insights, told Bloomberg.
The market capitalisation of Anil Ambani’s companies has dwindled to less than $4 billion, while Mukesh Ambani’s Reliance Industries stands at $98.7 billion, according to an FT report.
The jail risk
The court order came after months of wrangling.
The row with Ericsson began when the Swedish equipment maker sought to collect overdue payments from Reliance Communications. The company appeared to settle the dispute with Ericsson in May last year, but failed to meet the payment deadlines, prolonging the row.
Separately, RCom had agreed to sell its airwaves, towers, fiber and other telecom assets to Jio in December 2017 to stave off creditors. But regulatory and legal hurdles stalled the closing of the deal, frustrating RCom’s attempts to repay lenders. RCom ultimately decided to enter bankruptcy proceedings this month after struggling to repay billions of dollars in debt.
A window of hope
The appellate tribunal said RCom is free to request the Supreme Court to order SBI to release the funds. “This order will not come in the way of the appellants to ask for relief as sought for in this interim application from…Supreme Court,” it said.
RCom had moved NCLAT, seeking directions to the 37 lenders led by SBI to release Rs 260 crore directly to Ericsson. Lenders have refused to do so, saying public money can’t be used to settle payment to a private party.
NCLAT also asked the three parties — RCom, lenders and Ericsson — to find a way to ensure that the matter does not go back to the corporate insolvency process. If NCLAT passes an order pushing RCom back into insolvency, then Ericsson would need to refund any funds that it would have got from RCom, the bench observed.
RCom has said it wants to voluntarily go back into the insolvency process, saying it will help it sell its assets in a time bound manner. Under the Insolvency and Bankruptcy Code 2016, financial lenders such as SBI have priority in getting repaid from the sale of assets, while operational creditors like Ericsson are way down the list.