According to Bloomberg News, in the past year, the wealth gap between the two brothers in charge of India's richest business empire has widened to more than US$40 billion.
Figure 1: Mukesh Ambani, Chairman of Reliance Industries and Anil Ambani, Chairman of Brother Reliance Group
The 61-year-old brother Mukesh Ambani has surpassed Jack Ma to become the richest man in Asia. After leading the Indian operator Reliance Jio to promote a telecommunications revolution, he brought its petrochemical conglomerate, Reliance Industries ( Reliance Industries) pushed into the $100 billion club. According to the Bloomberg billionaire Index (Bloomberg billionaire Index), Mukesh’s net worth has swelled to 43.1 billion US dollars, which is US$5.2 billion higher than Jack Ma and slightly higher than former Microsoft CEO Steve Ballmer ( Steve Ballmer).
Meanwhile, Anil Ambani, two years younger than Mukesh, had a difficult year. The Bloomberg Billionaires Index shows that many of Anil’s businesses have encountered legal and liquidity challenges, which have shrunk his personal wealth by nearly half, and now only $1.5 billion. Neither the Ambani brothers nor their team answered questions about their wealth and business operations.
The wealth differentiation of the brothers began 16 years ago, when their self-made father, Dhirubhai Ambani, died of a stroke without leaving a will. Di Lubai first worked as a gas station attendant in Yemen, and later built a huge business empire, selling stocks to a large number of small investors to finance large factories, so that the shareholders meeting had to be held on the football field.
Picture 2: On July 7, 2002, the Ambani brothers attended the funeral of their father
After the death of his father, the discord between the Ambani brothers became a major problem that plagued the company, until their mother intervened in 2005 and contributed to the "truce". Mukesh gained control of the flagship refinery and petrochemical companies, while Anil gained newer businesses such as power generation and financial services. Anil also took over the telecommunications department, which had previously expanded aggressively by bundling mobile connections at a one-time price under the leadership of Mukesh.
Telecommunication temptation
At that time, the wireless department seemed to give Anil a chance to have a brighter future. In 2005, crude oil prices climbed to a record high of over US$60 per barrel at the time, raising concerns that refiners’ profit margins might be eroded. India's booming mobile phone market is regarded as a future savior. The non-competition clause between the brothers prevented Mukesh from participating until the agreement was cancelled in 2010. Mukesh quickly returned to this telecom field, investing $34 billion in the next seven years to build a faster 4G wireless network for his Reliance Jio.
James Crabtree, a professor at the Lee Kuan Yew School of Public Policy in Singapore and the author of The Billionaire Raj, said: "This is a very, very big bet. Reliance Jio also gave Mukesh Opportunity to build his own legacy under the shadow of the business he inherited. In this sense, Jio is a desperate gamble."
Mukesh's investment paid off after a long time. For most of the past 10 years, Reliance Industries’ stock price has lagged behind the S&P BSE Sensex index because investors saw Mukesh investing a lot of money in his telecommunications network, but there was little sign of return at the beginning .
Price war
By 2016, the influence of Reliance Jio began to show. As of September this year, within less than two years of launching this service, Reliance Jio has signed up 252.3 million users and started to make money. Mukesh launched a devastating price war in which users only paid $2 a month, which caused heavy losses to his competitors.
Sanjiv Bhasin, Executive Vice President of IIFL Securities in Mumbai, India, said: “Reliance Industries’ diversification strategy outside of the energy sector is the biggest game changer. Mukesh has a 10-year vision and he expects Data will become the next gold and invest heavily in it."
Figure 3: Mukesh and his wife Nita Ambani, who runs the Reliance Foundation
Funding for this investment is the oil and petrochemical business left by Di Lubai, which continues to expand under the leadership of Mukesh and still accounts for 90% of Reliance Group's profits. The cash flow from this business, coupled with the blue-chip stock rating, allowed Reliance Industries to obtain large amounts of cheap capital. Saurabh Mukherjea, founder of Marcellus Investment Management Company (Marcellus), said: "Mukherjea has used this competitive advantage very cleverly."
At the same time, Anil has been selling assets to quell investors' worries about the increase in liabilities of some of his companies, which led to a further decline in his company's stock price. Like his brother, Anil has invested billions of dollars to expand his investment portfolio, but he does not have a cash cow like an oil refinery to fund economic growth. On the contrary, like other companies in India and elsewhere, many of his companies have increased debt.
The borrowing frenzy of local companies led to the accumulation of the world's worst non-performing loan record by Indian banks. When the Reserve Bank of India began to crack down on the resulting high debt of US$210 billion, highly leveraged companies were under tremendous pressure. Crabtree said: "The only option for any indebted company is to sell assets, seek refinancing or obtain new investors."
In Anil's business, the share price of Reliance Naval & Engineering has fallen the most this year, down 75%. This warship and submarine manufacturer was acquired in 2015 as his bet that national defense will become the next growth engine. However, the facts have proved that it is difficult for this company to turn losses into profits. The company said in March this year that since 2014, its loan accounts have been in an "irregular or substandard" state.
The defense contractor is arbitrating with the former owner over the latter’s alleged breach of certain guarantees. In April of this year, auditors warned that Reliance Naval Engineering Company could not survive, and two creditors were suing for bankruptcy. The company stated in a document submitted to the stock exchange in April that it is in contact with creditors and is confident of finding a solution to "solve the company's financial situation and continue to operate as a sustainable company."
Anil's other businesses are also facing difficulties. Reliance Defence, another defense company under Anil, was also under scrutiny for the 2016 negotiations between France and India on Dassault Aviation's $8.7 billion Rafale fighter jet. In a statement issued on August 20, Anil and his company denied the allegations of opposition lawmakers, who claimed that the deal unfairly benefited his company. Anil stated that the lawmakers were "misled by malicious vested interests and competitors."
Missed repayment date
Anil’s Reliance Infrastructure was the contractor of Mumbai’s first subway line. The company missed a bond payment in August this year, when the company was waiting to sell its transmission assets to a subsidiary of another billionaire Gautam Adani in order to obtain funds to pay the payment. Anil said at a press conference in August that Reliance Infrastructure plans to pay off its debts by next year.
Reliance Power is also a subsidiary of Reliance Group under Anil. Since the outbreak of the global financial crisis in 2008, Reliance Power’s stock price has fallen for 10 consecutive years. The group’s profitable financial services company, Reliance Capital, also saw its share price fall this year, despite the company’s no bad news. But for Anil's empire, the biggest challenge came from his brother's business.
Reliance CommunicaTIons was once the flagship company of Anil's portfolio, but this company suffered a heavy blow in the price war initiated by Reliance Jio. Last month, Reliance Communications sold 178,000 kilometers of optical fiber network as a measure to divest almost all wireless assets and exit the mobile phone business. The buyer is Reliance Jio of Mukesh. Basin said that Reliance Communications "is the crown jewel given to Anil after the family business split, but its debt and interest burdens are spiraling upward."
In May of this year, Ericsson persuaded a court to initiate Reliance Communications’ bankruptcy proceedings before agreeing to an out-of-court settlement. The sale of the assets of Reliance Communications to Reliance Jio fully unfolded the legend of the two brothers and laid the foundation for the next chapter of a great business dynasty in India.
it is too late
Anil is gradually paying off Reliance Communications’ debt and reverting the company’s focus to real estate. This month, Anil told investors that the Navi Mumbai real estate development project in Mumbai will create a value of Rs 250 crore for investors. Basing said: "These measures may be too late, but at least he did not choose to escape." Basing is still optimistic about the group's infrastructure, finance and power businesses.
Mukesh is preparing for a bigger gamble. In July of this year, he announced his plan to enter the e-commerce field and merge his telecommunications and retail businesses in order to compete with global competitors Amazon and Wal-Mart. Although these news boosted Mukesh Reliance Industries’ stock price, some investors have warned of its ambitious expansion plans. Over the past five years, Reliance Industries’ total debt has risen, and the return on capital of non-core investments has also been low.
Crabtree said: "Investors are worried about diversified holding companies for a reason." He explained that diversification of telecommunications has played a role, but "further action may be a gamble."
In the past few weeks, Mukesh has faced his own challenges. A ruling by the Supreme Court of India last month prohibited non-governmental organizations from using the national biometric database, and telecom operators, including Reliance Jio, have been using the database to sign contracts with customers. For telecommunications companies, verification costs may increase several times, coupled with the depreciation of the rupee and rising oil prices, causing Reliance Industries’ stock price to fall by 11% this month.
However, the media's attention to Mukesh and his wife, Nita, the head of the Reliance FoundaTIon, is for completely different reasons. Their eldest son Akash and daughter Isha are both engaged this year, which has made the elites of Mumbai and Bollywood pay close attention to two epic Indian weddings. Judging from the lavish engagement party that Akash held at his mansion in Mumbai in June this year, they will not be disappointed. The Akash mansion cost 1 billion U.S. dollars, has a total of 27 floors and 600 employees.
Obviously, the legend of the Ambani family will continue to be written.
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