Why Anil Ambani’s ‘Reliance Capital’ (Reliance ADAG) failed?

Who are the Ambani's?

The Reliance industries was inaugurated by Dhiribhai Ambani, he was a businessman who established and took Reliance to a whole new extent. Due to Dhirubhai Ambani, Reliance industries later came to be one the most valued companies of all time in both India and the world.

Dhirubhai Ambani’s two sons, Mukesh Ambani (eldest) and Anil Ambani (youngest) inherited their father’s property after his demise in 2002. Thus, Reliance was divided between the two successors. Mukesh Ambani, though having substantial knowledge in technology, telecommunication inherited the manufacturing industries, such as, Reliance industries limited, Reliance industries infrastructure limited, etc. But Anil Ambani though lacked proper knowledge and understanding in telecommunication, inherited most technical and telecommunication based companies, such as, Reliance communication limited, Reliance broadcast network limited and most renowned Reliance capital, which later became his dooms cause.

Mistakes:

Telecommunication: Though Anil Ambani inherited the telecommunication sector of Reliance’s, he lacked substantial understanding in it. When the world was transforming into a more vibrant technological era, such as, 3G, 4G, unlimited data plans, GSM (Global System for Mobile communication), he chose to stick with limited usability platforms, such as, CDMA (Code-Division Multiple Access) based phones which had very limited operations.

Reliance communications once had a market capitalization of more than 1 lakh crore rupees, today the same company is trailing at an 620 crore rupees mark. Thus, once a large, even mega cap company trailing at a micro cap segment.

Management: Anil Ambani lacked to expertise the management of the then existing companies, such as, Reliance capital, Reliance communications limited, etc, instead he chose to blend himself with more media and entertainment based companies, such as, Reliance mediaworks limited, Big cinemas (later came to be known as carnival cinemas after Anil Ambani sold off its stakes to clear off hefty debts upon Reliance ADA group), which not only overburdened hum with more loans, debts but also caused him to loose focus on his more profitable companies.

In 2006-07 Anil Ambani had an estimated net worth of around 45 billion USD, but his lack of sincerity in the management of his businesses left him under a market debt of a whopping 40,000 crore rupees.

Debts: As discussed earlier Anil Ambani not only took debts from different domestic and foreign banks but also took more debts to clear off previous debts. Business loans are a way to finance continuing and future projects, but overburdened debts / loans could also cause a business to go into liquidation. Anil Ambani not only took bank loans for his commercial projects but also to fund his day to day businesses.

Anil Ambani had debts with various national and international banks, such as, ICICI bank, Yes bank, HDFC bank, Axis bank, Industrial & commercial bank of China, China development bank, The export-import bank of China.