Indian Tycoon Anil Ambani Takes a Tumble

Fretting over a government probe, investors flee his Reliance Communications

By Mehul Srivastava

(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.