Reliance Anil Dhirubhai Ambani Group (Reliance ADAG) Problem Analysis

Why Anil Ambani’s companies stocks are falling?

Reliance Anil Dhirubhai Ambani Group is an Indian conglomerate. It is headquartered in Navi Mumbai, India. The company was formed after Dhirubhai Ambani’s business was divided up. Reliance ADA Group is headed by Anil Ambani. Reliance Group has the following companies under it:

1. Reliance Power
2. Reliance Communications
3. Reliance Infrastructure
4. Reliance Capital
5. Reliance Naval
6. Reliance Entertainment

The group provides telecom, financial services, construction, entertainment, power, health care, manufacturing, defense, aviation, and transportation services.

Reliance Anil Dhirubhai Ambani Group is going through a rough patch

Shares of the Anil Ambani group companies wilted under heavy selling pressure this week after Reliance Communications had announced its decision to move the insolvency tribunal for bankruptcy protection. Since February 4, Reliance Communications has plunged 54%, Reliance Power has declined 59%, and Reliance Capital has lost 32% while Reliance Infra has dropped 56%.
The fall prompted lenders to sell pledged shares, with L&T Finance selling 20 million shares of Reliance Communications, 7.8 million shares of Reliance Capital, 4.9 million shares of Reliance Infrastructure and 62.5 million shares of Reliance Power, on Thursday.

Share Price Movement

The stocks of all the companies under the group have fallen by 56-60% in the last 12 months. And in the last couple of weeks, some stocks have further fallen by almost 50%.
The group has pledged their shares in almost all the companies. That is also why the stocks of the companies are falling so much.
The market capitalization of these companies have also deteriorated drastically.

Total Debt on the Company

The group has a total debt of more than Rs. 1 lakh crore on them and they are not able to service these borrowings (debt).
So, if we consider a usual 10% interest rate, then the group is not even able to pay the annual interest of Rs. 10,000 crores on their debt.
Company wise classification:

• Reliance Infrastructure :
  The total outstanding debt on this company is of Rs. 17,000 crores.
  The power business in Mumbai, that is the electricity supply in Mumbai, was previously held by Reliance Infrastructure. But this business has now been sold to Adani Transmission Ltd for a deal of Rs. 19,000 crores. Of this Rs. 19,000 crores, Rs. 5,000 crores were transferred to the account of the company and the rest Rs. 14,000 was the debt carry forwarded to Adani Transmission Ltd as the whole business was only sold to them.
  Thus, the initial debt of Rs. 30,000 crores has now reduced down to Rs. 17,000 crores.

• Reliance Power :
  The total outstanding debt on this company is of Rs. 30,000 crores.
  They recently sold some plants of Reliance Power amounting to Rs. 700-800 crores. But this amount is negligible compared to the debt on the company.

• Reliance Communications :
  The total outstanding debt on this company is of Rs. 47,000 crores.
  The company has not yet paid the money for the deal made with Ericsson 7-8 year back, even with the personal guarantee taken by Mr. Anil Ambani. There is an on-going legal battle on this matter.
  To reduce the debt, the company is planning to sell their telecom towers, spectrum, some real estate owned by the company, their DTH business. The company is planning to sell a land in Navi Mumbai for the price around Rs. 11,000 crores.
  The company had also finalized a deal to sell the telecom towers and spectrum to Jio for Rs. 25,000 crores. This deal has yet not been approved by the Regulatory Authority.
  Anil Ambani has now approached National Company Law Tribunal (NCLT) has the lenders, almost 45-47, have not agreed to the debt repayment plan presented by Reliance group. Here, the NCLT will now have meeting with all the lender and decide how the debt will be paid-off. So, now Mukesh Ambani may try to take advantage of the situation and may even bargain some more for the deal. Because toady there is no company other than Reliance Jio in the telecom sector which will be able to buy these things. So, now Reliance Jio may even quote a lower amount in the tender to buy this deal and Reliance Communications may nit get the expected amount of Rs. 25,000 crores.

• Reliance Naval :
  The total outstanding debt on this company is of Rs. 5,300 crores.
  These are the major companies on which the group has debt. 30%-40% of the debt might get written-off as the business did not prosper. The companies have failed in business terms and no fraudulent activities were conducted.

Summary

• Reliance Communication was the biggest reason behind this huge debt. And Reliance Jio is the biggest reason for the failure of Reliance Communications.
• Reliance Capital is the only profitable company.
• The future of this group doesn’t look quite good.
• Anil Ambani has expressed his wish to get out of the businesses of Reliance Power, Infrastructure, Communications and Naval.
• Anil Ambani plans to get in the real estate business in the future. There are plans to build an university in the name of Dhirubhai Ambani.

Notes: –

• The numbers that are used are approximate and have been rounded for presentation purposes.
• Only an analysis on the group and their companies has been presented here.
• No judgments or final statements are being here.