(Corrects to add the consolidated earnings of Reliance Infrastructure group in the 19th paragraph of story published Feb. 17.)
Three years ago, when Anil Ambani ranked among the 10 richest men in the world, he had little problem raising $2.5 billion for an electric utility with no revenue and zero experience in the power business.
These days, the magic is gone. Shares of Ambani's six listed companies are suffering. His mobile-phone operator, Reliance Communications Ltd., has been caught up in a long-running scandal involving the sale of airwaves to telecommunications companies. On Feb. 16, Ambani, 51, visited the New Delhi headquarters of the Central Bureau of Investigation for questioning, Bloomberg Businessweek reports in its Feb. 21 edition.
The Anil Dhirubhai Ambani Group, which controls Ambani's half-dozen public companies, has seen the value of its shares in those companies fall by nearly half — or about $17.9 billion —since August 2009, according to data compiled by Bloomberg.
That's when Kotak Securities Ltd. issued a report saying Reliance Communications had engaged in "accounting opportunism." The Mumbai brokerage also sparked a government audit of Reliance when it said the company had reported higher revenue numbers to investors than it had to India's telecommunications regulator.
On Feb. 9, an Indian accountants association said it had queried Reliance Communications on its finances. The market value of Ambani's publicly traded companies fell by a combined $2.6 billion that day. Institutional investors increased their holdings in Reliance Communications by 0.33 percentage points to 17.54 percent in the year ended Dec. 31, 2010, according to company filings with the Bombay Stock Exchange. Institutional investors have sold a net total of 3 million shares since Jan. 1,
according to data compiled by Bloomberg. Ambani lost $23.8 billion of his personal wealth between March 2008 and March 2010, Forbes estimates. "The main reason we lowered our stake was aggressive accounting," said Walter Rossini, who manages an India fund at Aletti Gestielle SGR SpA in Milan and halved its holdings in Reliance Communications in December.
Ambani's group blames the stock declines on "baseless rumors…and an illegal bear cartel" and has demanded an investigation by India's market regulator. Ambani is also chairman of Reliance Capital Ltd., which owns 18 percent of Bloomberg UTV, a television joint venture with Bloomberg LP, the owner of Bloomberg Businessweek.
Anil Ambani's woes stand in sharp contrast to the fortunes of his older brother, Mukesh. The two split their father's vast empire in 2005 when he died without leaving a will. Mukesh Ambani, 53, kept oil and gas refineries, while Anil Ambani inherited younger, faster-growing businesses such as a telecommunications operator, power generation and distribution companies, financial services and a construction company. Mukesh Ambani has built his Reliance Industries Ltd. into India's most-valuable company and managed to keep debt under control.
While Anil Ambani has had some high-profile successes, such as a deal to fund films by Steven Spielberg's Dreamworks SKG, overall he "has been unable to deliver," said Juergen Maier, a fund manager for Raiffeisen Capital Management with about $1.3 billion in emerging markets but no Anil Ambani shares. Anil Ambani's finances are "difficult to understand and corporate governance is not very strong."
Total debt for Reliance Communications, Reliance Power Ltd. and Reliance Infrastructure Ltd. exceeds cash and equivalents by about $10 billion, according to data compiled by Bloomberg. Reliance Communications burned through $477 million in the quarter ended Dec. 31, pushing available cash down to $327 million from $1.9 billion in the previous quarter, according to its cash-flow statement.
Anil Ambani failed to sell a stake in a transmission-tower subsidiary last year, and he's trying to sell 26 percent of the phone company. "They have to take some bold decisions now," said Jagannadham Thunuguntla, chief strategist at SMC Capital in New Delhi. "They have to sell off their noncore assets and use that money to reduce debt."
Reliance Power is planning to spend at least $7 billion on power plants this year, research firm Sanford C. Bernstein & Co. reports, and on Feb. 14 Reliance Power said it only had $935 million left from its initial public offering three years ago.
Typically, power companies provide a quarter of the cost of new plants and finance the balance, which would mean the company needs at least $1.75 billion to fund its investment plans. Reliance Power doesn't have that money, said Michael Parker, an analyst with Sanford C. Bernstein.
"Given what the stock is doing, they really can't raise all that much from the equities markets," Parker said. "And given what's going on with the group, the debt markets aren'
going to look too good, either."
An Ambani Group spokesman, who refused to be identified citing company policy, said the companies are financially sound and Reliance Communications has financing from China Development Bank Corp. to cover its costly rollout of third-generation wireless service. Reliance Power has $1.5 billion in cash, he said, and won't need to raise any funds before the end of next year.
Reliance Infrastructure has at least $750 million in cash and another $1 billion in cash equivalents, the spokesman said. The trouble wouldn't seem so acute if Ambani's companies were performing as well as they once did. Reliance Infrastructure saw net profit, excluding its subsidiaries, drop 40 percent to $36 million for the quarter ended Dec. 31 because of falling sales, the company said. Reliance Infrastructure's group profit rose 10 percent to 4.05 billion rupees, the company said in a statement.
Reliance Communications is India's second-largest mobile-phone operator with 125 million subscribers, and competition is so intense that the cost of a phone call has fallen to just a half-penny per minute. The company blames the low rates for a 57 percent decline in net income, to $106 million, for the December quarter.
"It's a pretty bad set of numbers," said Naveen Kulkarni, a Mumbai-based analyst at MF Global Securities. "Disastrous."