Via Financial Times

In March 2013, Bollywood was abuzz as Steven Spielberg came to town. At a glitzy gala to celebrate his visit to Mumbai, the world’s most famous film-maker mingled with a star-studded crowd and chatted on stage with legendary Indian actor Amitabh Bachchan.

Seated at a table alongside the two was the party’s host, the man who made the visit possible: Mr Spielberg’s business partner and “dear friend” Anil Ambani, then one of the world’s richest men.

The event cemented the reputation of Mr Ambani, the younger son of a corporate dynasty, as one of 21st-century India’s most glamorous tycoons. His foray into entertainment, including a tie-up with Mr Spielberg’s DreamWorks, added flamboyance to a business empire centred on telecommunications, power and finance. In 2008, Forbes named Mr Ambani as the world’s sixth-richest man with a fortune of more than $40bn.

Mukesh Ambani (L) and Anil Ambani (R), sons of India's industrialist Dhirubhai Ambani, carry their father's body past a crowd of mourners and journalists to a crematorium in Bombay July 7, 2002. Mourners from India's political, business and entertainment worlds attended the funeral in Bombay on Sunday of industrialist Dhirubhai Ambani, who died the previous day aged 69. REUTERS/Arko Datta AD/CP - RP3DRIBRWYAA
Mukesh Ambani (L) and Anil Ambani (R), sons of India’s industrialist Dhirubhai Ambani, carry their father’s body in 2002. His was one of 20th-century India’s most celebrated rags-to-riches success stories © Arko Datta/Reuters

Yet in the intervening years, Mr Ambani has endured one of the most stunning reversals of fortune in recent corporate history. The extent of this decline has now been laid bare through a legal case in London which reaches a crucial stage this week, as a trio of Chinese banks pursue him for some $700m in unpaid loans they allege he personally guaranteed.

The case prompted Mr Ambani to make the extraordinary claim last month that his net worth had plummeted to zero after many of his investments soured and his flagship telecoms business, Reliance Communications or RCom, went bankrupt.

But his creditors — Industrial and Commercial Bank of China, the world’s largest bank by assets, China Development Bank and Export-Import Bank of China — allege that Mr Ambani, whose older brother Mukesh is now India’s richest person, continues to enjoy access to vast wealth. Not only does this include interests in companies around the world, they say, but an apartment building in exclusive south Mumbai, a private jet, a yacht worth tens of millions of dollars and a $3m fleet of cars.

A judge has given Mr Ambani, who denies that he personally guaranteed the loans, until March 20 to pay $100m into court ahead of a trial. If a payment is not made, Mr Ambani’s defence can be struck out.

“Mr Ambani has, and continues to have, a very lavish lifestyle,” Mr Justice Waksman said in a February judgment. “I just do not accept that his own available assets are as limited or as negative as he says . . . He clearly has more assets and/or income than he is letting on.” Mr Ambani is appealing the order, saying the assets in question are not owned by him and that he has no funds at his disposal.

Mr Ambani is among the most high profile of a generation of Indian tycoons who rode a wave of booming economic growth over the past decade, tapping easy credit to fuel labyrinthine, infrastructure-heavy conglomerates.

India's Congress party workers wear masks of Indian Prime Minister Narendra Modi (L) and business tycoon Anil Ambani, as they pose in front of a model of a Rafale fighter jet during a protest against the Rafale fighter jet deal, in Mumbai on September 27, 2018. - Former French president Francois Hollande has fuelled controversy over India's multi-billion-dollar 2016 purchase of 36 Rafale fighter jets, saying that France was given no choice on the Indian partner for manufacturer Dassault. (Photo by INDRANIL MUKHERJEE / AFP) (Photo credit should read INDRANIL MUKHERJEE/AFP via Getty Images)
India’s Congress party workers wear masks of Narendra Modi (L) and business tycoon Anil Ambani, in front of a model of a Rafale fighter jet during a protest against the Dassault fighter jet deal, in Mumbai in 2018 © INDRANIL MUKHERJEE/AFP/Getty

But as India’s economy slowed, many of those bets soured. That has left the banks and other lenders that financed the group of industrialists, who are known locally as “promoters”, struggling to recoup billions of dollars worth of unpaid debts.

The dangers of this cycle became apparent this month when private Indian lender Yes Bank, which had exposure to Mr Ambani’s companies, was taken over by the central bank amid fears that it would not survive — sending shockwaves through the financial system. Reliance Group said it is committed to repaying its debts to Yes Bank.

The perceived lack of accountability for the industrialists who sit atop these crumbling groups has fuelled resentment at a time when India is suffering its most severe slowdown in years.

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“This is a very open secret that in India, the business goes bankrupt but the businessmen never go bankrupt. Their lifestyles never get affected,” says one former executive at an Indian financial group. “In a good year, it goes unnoticed. Because the economy is in a downturn . . . they are being pushed into a corner.”

Mr Ambani spent some of his early years in tenement housing in an unremarkable Mumbai neighbourhood, a far cry from the gilded life he would go on to enjoy.

His late father Dhirubhai Ambani was one of 20th-century India’s most celebrated rags-to-riches success stories, rising from petrol-pump attendant to lead a polyester-manufacturing empire.

French President Francois Hollande (L) meets Indian industrialist and Reliance ADAG CEO Anil Ambani (R) on February 21, 2017 at the Elysee Presidential Palace in Paris. / AFP / POOL / STEPHANE DE SAKUTIN (Photo credit should read STEPHANE DE SAKUTIN/AFP via Getty Images)
Francois Hollande (L), then French president, meets Anil Ambani (R) in 2017 at the Elysee Palace in Paris © STEPHANE DE SAKUTIN/AFP/Getty

Mukesh and Anil first burst into public view in 2002 after Dhirubhai died without leaving a will, setting up a years-long dispute between the two brothers that drew comparisons with Bollywood family dramas and even the Sanskrit epic The Mahabharata, in which two branches of a family go to war with each other.

The brothers divided their father’s businesses in 2005. While Mukesh took the oil products business under the Reliance Industries brand, Anil wrapped telecommunications and power into his Reliance Group.

The spat continued, with Anil accusing Mukesh of reneging on a gas-supply deal and, separately in 2008, suing his brother for alleged defamation. In the same year, Mukesh used his first right of refusal under the terms of the divorce to scupper a deal that would have seen Anil’s RCom merge with South African MTN to create a transcontinental mobile phone giant.

Anil told shareholders in 2009 that Reliance Industries “has tried every trick in the book, and apparently several outside the book, to back out of its solemn, legal and contractual obligations. It is plain and simple corporate greed.” Reliance Industries declined to comment.

But their paths followed sharply different trajectories. Anil’s investments in power and infrastructure suffered, while RCom lost market share to rivals before being hammered by a newcomer into the sector: none other than his elder brother.

HOLLYWOOD, CA - FEBRUARY 26: Chairman of Reliance Anil Dhirubhai Ambani Group Anil Ambani (2nd L) and guest, director Steven Spielberg and Kate Capshaw (both center), and Co-Chairman/CEO of DreamWorks Stacey Snider (2nd R) and guest arrive at the 84th Annual Academy Awards held at the Hollywood & Highland Center on February 26, 2012 in Hollywood, California. (Photo by Kevin Mazur/WireImage)
Anil Ambani, second left, with guests including Steven Spielberg and former DreamWorks CEO Stacey Snider, second right, at the Academy Awards in 2012 © Kevin Mazur/WireImage/Getty

Mukesh’s new mobile operator Reliance Jio, backed with tens of billions of dollars in investment, started a price war in 2016 that eroded revenues to a point where the number of private providers fell from around a dozen to three today. RCom quit the mobile sector in 2017, entering bankruptcy proceedings with around $7bn in debts last year after a deal to sell its assets to Jio fell through. In 2019, Forbes named Mukesh as India’s richest man with a net worth of $50bn.

By contrast Anil’s lawyers told the High Court in February that Reliance Innoventures, the holding company owned by him and his family, had a net asset value of negative $412m at the end of 2019.

“These stories are a combination of hubris and misfortune,” says Saurabh Mukherjea, founder of Marcellus Investment Managers in Mumbai. “India was a red-hot roaring economy, and it’s no longer a red-hot roaring economy. As the tide has receded these promoters have been left stranded.”

As China Inc traversed the globe in search of returns over the past decade, India’s nascent mobile sector seemed a promising place to park.

By loaning money to telecommunications tycoons, China’s state banks could help fund the purchase of equipment from the likes of Huawei and ZTE, aiding national champions while simultaneously tapping the credit market.

E5EEY6 South Mumbai from Kemp's corner at dusk, central Mumbai, India. Image shot 2014. Exact date unknown.
South Mumbai, near the Ambani family’s Seawind apartment building © John Michaels/Alamy

Against this backdrop, ICBC, CDB and Exim in 2012 agreed to loan RCom almost $1bn. With foreign currency debt obligations due in March of 2012, Anil Ambani dispatched a senior RCom executive to Hong Kong in February on his behalf to sign off on the deal with the Chinese banks. The banks allege the deal included a personal guarantee making Mr Ambani responsible for the debt under English law.

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RCom had by 2018 defaulted on the repayments, prompting the banks to sue Mr Ambani in an English court last year. But Mr Ambani says he had no knowledge that, when he gave his lieutenant power of attorney to sign on his behalf, it would be used for anything more than a non-binding “comfort letter” assuring the banks that the debt would be repaid.

Citing correspondence placed before the court detailing the negotiations, Mr Ambani’s lawyers argue there is no evidence that Mr Ambani ever authorised anyone to make a guarantee.

Justice Waksman was critical in his assessment of Mr Ambani’s defence, observing that it would amount to “serious dishonesty” and deception by his executives without an obvious motive.

“I consider that Mr Ambani’s evidence is inexplicably incomplete, implausible and highly unlikely,” the judge said in a December ruling. “I think it is highly probable that at trial his defence will be shown to be opportunistic and false.”

The judge also said in February Mr Ambani had been “caught out on a lie” for suggesting he would not give a personal guarantee of such nature, after it was revealed in court filings that he had already done so to the State Bank of India.

Pedestrians walk past a customer using an automated teller machine (ATM) at an Industrial & Commercial Bank Of China Ltd. (ICBC) branch in Hong Kong, China, on Wednesday, March 30, 2016. ICBC, the world's largest lender by assets, cut its dividend payout ratio for 2015 as profit growth stalled with rising bad loans. Photographer: Justin Chin/Bloomberg
A customer uses an ATM at an Industrial and Commercial Bank of China branch in Hong Kong. ICBC is one of Anil Ambani’s creditors © Justin Chin/Bloomberg

Reliance Group did not respond to a request for comment on the judge’s view that Mr Ambani lied. The company said in December that “Mr Ambani is confident that his position would be fully vindicated once all the facts and the entire evidence is before the court”.

The Chinese banks called the case “a straightforward debt claim to recover outstanding loans made to RCom in good faith and secured by a binding personal guarantee given by Mr Ambani, which he has refused to honour. We remain very confident.”

The banks’ lawyers alleged in court filings from February that Mr Ambani is not being transparent about his wealth, calling his pleas of poverty “a yet further opportunistic attempt to evade his financial obligations”.

They point, for example, to the yacht reportedly bought as a gift for his wife Tina, a former Bollywood star. Mr Ambani also continues to live across two floors of SeaWind, an apartment building with a roof-top helipad into which his father Dhirubhai moved the family in the late 1980s.

Mr Ambani’s lawyers told the court he does not own the building but is allowed to live there rent-free. He said the yacht was purchased for $20m instead of the $56m price suggested by the banks, denied it was a gift and said it is owned by a company whose value is already factored in to Reliance Innoventures’ negative net value.

The banks accuse Mr Ambani of moving assets beyond their reach, pointing to a decision to sell a stake in a London Stock Exchange-listed company as proceedings in the High Court were ongoing.

In court filings they also cited PwC’s decision to resign in June 2019 as auditor of Reliance Capital, one of the group companies. In its resignation letter, PwC said it had not received a satisfactory response from the company when it flagged certain allegedly irregular transactions.

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The banks alleged in their filings that PwC’s decision to resign “on the grounds of concerns about improper diversion of funds” serves “to cast further doubt on the reliability of the picture presented” by Mr Ambani.

But Mr Ambani’s lawyers told the court that the UK stake was sold to cover other debt obligations, adding that the banks’ case contains “errors and misapprehensions”.

Reliance Capital has denied the suggestion that consultants PwC uncovered evidence of impropriety, saying at the time that PwC’s observations were “completely baseless and unjustified . . . There is no question of ‘diversion’.”

MUMBAI, INDIA - SEPTEMBER 30: Reliance Group Chairman Anil Ambani with his son Jai Anmol Ambani and Reliance Capital's Vice Chairman Amitabh Jhunjhunwala, during the Reliance Annual General Meetings at KC College, on September 30, 2019, in Mumbai, India. (Photo by Anshuman Poyrekar/Hindustan Times via Getty Images)
Anil Ambani with his son Jai Anmol Ambani and Reliance Capital’s vice chairman Amitabh Jhunjhunwala, during the Reliance AGM last September in Mumbai © Hindustan Times/Getty

Prime Minister Narendra Modi has sought to put an end to the era of crony capitalism that he said flourished under his predecessors, giving authorities and creditors broader powers to pursue indebted promoters.

But the prime minister has simultaneously cultivated close ties with industrialists including Mr Ambani, fuelling controversies of its own. The pair were at the centre of an international outcry over allegations levelled by India’s opposition Congress party, and repeated by former French president François Hollande in 2018, that the Indian government helped Mr Ambani’s defence business secure a deal to build fighter jets with France’s Dassault.

Mr Ambani criticised “the complete falsity of the wild, baseless and politically motivated allegations levelled against Reliance Group and me personally”. The government and Dassault have also denied wrongdoing.

Pressure on Mr Ambani has nonetheless mounted as his fortune plunged. He faced three months in jail last year after India’s Supreme Court found him guilty of contempt of court for delaying a $77m payment to RCom creditor Ericsson, the Swedish telecoms group.

That payment was ultimately made by Mukesh, prompting speculation that the two brothers had put their disputes behind them. Anil at the time expressed his “sincere and heartfelt thanks” to his elder brother, though he has since denied that it was anything more than a corporate transaction between the two conglomerates.

The biggest shift in the balance of power away from the promoters has been thanks to the 2016 bankruptcy code, India’s first, which wrests control of companies from industrialists if they are unable to repay debts.

But the system has nonetheless been beset by delays and messy legal battles have limited recoveries. While on paper cases should be resolved in under a year, many have dragged out far longer as founders fight to reclaim businesses.

“The big challenge that we as a nation are currently grappling with is to get these assets back on stream, make them productive again,” says Ananda Bhoumik, managing director of India Ratings and Research. “It’s a work in progress.”

The young bankruptcy code’s next big test will be none other than RCom. This month RCom’s creditors approved a resolution plan that would clear the way for Mukesh’s Reliance Jio to buy its core mobile assets for about Rs47bn ($636m), people familiar with the matter said, with another investor buying remaining assets including spectrum and real estate.

If approved by an Indian court, it could help the Chinese banks recover a chunk of the dues they are currently pursuing in London.

Yet Abizer Diwanji, India financial services head at EY, says lenders still face an uphill struggle in their efforts to pursue the Indian tycoons they once bankrolled. Enforcing personal guarantees, for one, “is unprecedented”, he says. “We’re not there yet.”