21 March 2019: Mukesh Ambani’s decision to end a deal with his brother—even as he bailed him out—may be an astute business move.
While helping keep his sibling out of prison this week, Ambani also ditched an accord to buy the assets of his brother’s beleaguered telecom carrier Reliance Communications, effectively nudging it toward bankruptcy. With RCom all but sure to head into insolvency proceedings, Ambani may be able to snag those same assets at a discount.
In a last-minute rescue on Monday, Mukesh stepped in to help younger brother Anil pay $80 million in dues to a local unit of Ericsson AB and avert a three-month jail sentence. On the same day, his Reliance Jio Infocomm and Anil’s RCom terminated a 2017 deal that had helped the latter stave off bankruptcy.
With that deal now off, RCom is likely to go into a court-led process that may provide Mukesh’s Jio another shot at buying up the carrier’s airwaves, towers and fiber. What’s more, he may get them for less than the Rs 17,300 crore Jio agreed to pay a year ago given the weak financial health of other telecom operators.
“Jio may have scrapped the asset purchase deal with RCom, but it cannot be ruled out that Jio will try and participate in the purchase,” under the bankruptcy process, said Saurav Kumar, a New Delhi-based Partner at IndusLaw, an Indian law firm. That “may eventually be cheaper for Jio.”
“India’s bleeding telecom sector will probably keep auction prices low,” allowing Jio to spend less on acquiring RCom’s spectrum, Kunal Agrawal, a Bloomberg Intelligence analyst, said.
Emails seeking comment from spokespersons at Reliance Industries and RCom went unanswered.
A lower price for RCom’s assets would mean deeper haircuts for lenders trying to recover some of the $7 billion in debt the unprofitable operator had as of March 2018.
As Anil’s fortunes have nose-dived, Mukesh’s have soared—partly due to enthusiasm about the expansive vision he’s laid out for his consumer businesses. Anil’s net worth has shrunk to about $300 million from at least $31 billion in 2008. Mukesh’s fortune is pegged at $55 billion, by the Bloomberg Billionaires Index.