From heading a conglomerate that had a market cap larger than the Tata Group in 2007 and being the sixth richest man globally, to having to declare himself bankrupt before a UK court in 2019, Anil Ambani’s fortunes have reflected that of his flagship financial services firm.
The troubles began with the global financial crisis in 2008, which strained liquidity for financial services companies. Instead of consolidating, ADAG Group continued its expansion, making big ticket investments in a joint venture with Steven Spielberg’s Dreamworks. There was also a string of acquisitions including Global Cloud Xchange, a global video game maker which was renamed Zapak, UTV Television, Pipavav Shipyard and MTS telecom.
The group’s diversification into infrastructure, particularly Reliance Power, defence and media took its toll on finances as the entry was at the wrong end of the business cycle and made matters worse.
Reliance Communications (Rcom), which was expected to be a cash cow, also took a hit because of excess leverage. Also, the fact that Rcom was running on code division multiple access (CDMA) technology, which was shut down as industry shifted to GSM, also impacted business.
While other group companies faced their own challenges, at the core of Reliance Capital’s downfall were governance issues, particularly related-party transactions. Reliance Capital’s two main lending subsidiaries, Reliance Home Finance and Reliance Commercial Finance, went into default. The primary reason for the default was that these two companies had extended loans to related parties, which subsequently defaulted. Sebi’s latest actions against Ambani and other senior officials of the ADAG group pertain to these transactions conducted by Reliance Home Finance.
The final nail on the coffin for the financial services firm was the tightening of liquidity after the twin failures of IL&FS and DHFL. Because of governance issues, Reliance Capital’s auditor PWC refused to sign the FY19 balance sheet leading to the Reserve Bank of India finally superseding the firm’s board initiating bankruptcy proceedings in November 2021.
Ambani inherited the financial services, power and telecom businesses after his father and founder of Reliance Industries Dhirubhai Ambani’s death in 2002.