RCom faces insolvency test

By:Vandita Jadeja 2018-05-18

Founder of Reliance Industries, Dhirubhai Ambani was an icon in India. At the time of his death in 2002, Reliance had more than two million shareholders. The name Reliance itself spelled high shareholder value. Today, one of the Reliance companies is going bankrupt; Reliance Communication is a part of Anil Ambani’s business who split with his elder brother, Mukesh Ambani in 2006.

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Three insolvency petitions have been filed against RCom and its subsidiaries by the telecom gear maker Ericsson in order to recover INR 1,150 crore in dues. Dealing with crisis since long, RCom was attempting to sell its towers, nodes, fibre and spectrum to his elder brother’s company Reliance Jio for INR 18,000 crore. Unfortunately, he cannot sell any of its assets now. Only few could imagine a Reliance company being chased by creditors or going bankrupt. Although the business of Anil Ambani group was not as big as that of his elder brother, it was impossible to think that a Reliance company will ever face insolvency test. Personal fortunes of Anil Ambani have also shrunk since he and his elder brother split the business in 2006.

In 2007, Mukesh Ambani had a net worth of $49 billion and Anil Ambani had a net worth of $45 billion. He had a stake of 66% in the telecom venture Reliance Communications, which was his biggest asset.  Anil’s net worth has shrunk to $3.15 billion in 2017 while Mukesh’s was $38 billion. It can also be noted in the trend shown by the company. Mukesh’s Reliance Industries had sales of 11.2%, a profit of 9.4% and a return of 17.8%. For Anil’s Reliance Group, the same figures stand at 9.4%, -12.6% and -1.7% respectively. There is a similar gap in the market value of both the companies. The market cap of Reliance Industries is at INR 6 lakh crore and that of all the three firms managed by Anil stands at INR 47,017 crore. After the split, the market cap of Reliance Industries owned by Mukesh Ambani rose from INR 96,668 crore to INR 5,90,500 crore and the market cap of Anil’s companies declined from INR 56,600 to INR 47,000 crore.

In 2017, Reliance Communication came up with a debt resolution plan which included the selling of its assets. In 2010, it held a market share of more than 17 percent and was at the second position in the telecom segment. In 2016, the market share was less than 10 percent and it is nowhere amongst the top firms. The debt kept piling up and it kept losing the market. The debt stood at INR 25,000 crore in 2010 and has almost doubled to INR 45,000 crore today.

The dipping inability to service and a rising debt has been the biggest problem of Reliance Group Companies like RCom, Reliance Infrastructure and Reliance power. In the recent years, the group companies have exited cement and roads, media and entertainment due to the piling debt. It recently sold the Mumbai power business to Adani transmission.

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