Foreign Media On Anil Ambani And India’s Mountain Of Bad Debt

Foreign Media On Anil Ambani And India's Mountain Of Bad Debt

Shares of Reliance Communications fell 4.2%, Reliance Capital slipped 4.3% on Wednesday

In a remarkable warning to India’s elite, the nation’s top court said it will put one of the country’s most prominent business executives behind bars unless his group pays its dues.

It’s the latest twist in a dispute that helped push billionaire Anil Ambani’s mobile-phone carrier into bankruptcy proceedings and cast an unflattering light on the Indian mogul, who’s the younger brother of Asia’s richest man.

Supreme Court said Wednesday that Mr Ambani disobeyed its earlier order for one of his companies, Reliance Communications Ltd., to pay Rs. 550 crore ($77 million) to Ericsson AB’s Indian unit. If payments aren’t made within four weeks, the 59-year-old tycoon will be jailed for three months, the court said. Mr Ambani’s group said it will comply.

The threat shows India is upping the ante when it comes to tackling a mountain of bad debt that’s among the worst in the world. A $190 billion pile of soured and stressed debt has put the future of some Indian lenders in doubt and curbed investment just as the country is preparing for general elections.

Strong Message

The court ruling “definitely sends a very strong message to defaulting companies and managements that contractual dues need to be paid,” said Manmeet Singh, a New Delhi-based partner at local law firm L&L Partners. “This will certainly give more confidence to foreign investors regarding enforcement of contracts in India.”

Noting that the Ambani group had “willfully not paid” the money owed to Ericsson, the court said that it “clearly demonstrates cavalier attitude” towards the “highest court of the land.”

India’s banking regulator, law makers and courts have been cracking down on delinquent borrowers armed with a two-year-old bankruptcy law to tackle the overhang of bad debt. India has surpassed Italy in having the worst non-performing loan ratio among the world’s major economies.

The concerted crackdown on defaulters has given banks more bargaining power as founders and controlling shareholders can no longer hope to walk away from their dues without major consequences, irrespective of how storied their business families might be.

Dodge Arrest

It’s rare for billionaires to go to prison in India. Subrato Roy, founder of the Sahara Group who was sent to custody in 2014 for his group’s failure to comply with regulator’s order for a $3.9 billion refund to depositors, was an exception. Most others, including Vijay Mallya, founder of defunct Kingfisher Airlines Ltd, have managed to dodge arrest.

That’s changing. Last year, the government empowered state-run banks to prevent so-called willful defaulters from fleeing the country and enacted a new law against fugitive economic offenders.

The dispute with Ericsson began when the Swedish telecommunications equipment maker sought to collect Rs. 1,600 crore in dues from Reliance Communications, or RCom. The Indian company settled the dispute with Ericsson in May last year, but failed to meet the payment deadlines, prolonging the row.

RCom decided to enter bankruptcy proceedings earlier this year after struggling to repay about $6.3 billion in debt. Ironically for Mr Ambani, his extraordinary reversal of fortune in the telecommunications industry came after his older brother stormed into the market with a new outfit called Reliance Jio Infocomm Ltd., igniting a price war by offering free calls.

The tycoon’s older brother is Mukesh Ambani, chairman of oil-and-telecom giant Reliance Industries Ltd. He overtook Chinese e-commerce titan Jack Ma as Asia’s richest man last year. Mr Anil’s fortunes meanwhile have dwindled to $1.2 billion, according to Bloomberg Billionaires Index.

Wednesday’s ruling, which included fines levied on three of Mr Ambani’s companies, reverberated across his business empire. Shares of Reliance Communications fell 4.2 per cent, Reliance Capital Ltd slipped 4.3 per cent and Reliance Infrastructure Ltd slumped 2.2 per cent. Reliance Power Ltd also declined.

RCom had agreed to sell its airwaves, towers, fiber and other telecom assets to Reliance Jio in December 2017 for Rs. 17,300 crore to fend off creditors. But regulatory and legal hurdles stalled the closing of the deal, frustrating RCom’s attempts to repay lenders.

The telecom operator, which had $113.6 million in cash and equivalents as of September 30, may have to rely on the group for paying these dues.

“It’ll be very difficult for RCom to meet the ordered payment and the group companies might be utilized to pay the dues through inter-corporate loans,” said Sameer Kalra, president at Mumbai-based advisory Target Investing. “This risks group companies as well.”

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