Dear Anil,
Happy birthday to you! A birthday is a landmark event in one’s life that triggers stocktaking and introspection, both nostalgic and rueful. As a callow youth, I have observed with growing fascination laced with admiration your illustrious father’s zest for innovative growth both on the financial and business fronts. His accent on backward integration---synthetic textiles to oil exploration---had won him grudging admiration even from his carping and diehard detractors.
Equity cult and Dhirubhai are uttered in the same breath. He could tap the capital market anytime for any amount thus affording him the luxury of dispensing with institutional loan financing which to his mind was stifling. Convertible bonds, now almost extinct, were his baby. Converting non-convertible bonds into equity though frowned upon by fastidious purists got the thumbs up from investors. The two 27 million tonne refineries at Jamnagar are standing testimonies to his vision.
In 2005, when your mother Mrs Kokilaben Ambani brokered a family settlement between you and your elder brother Mukesh, you plumped for all businesses in the Reliance conglomerate save petroleum, the crown jewel. While many thought you were courting trouble and abnegating your just share of the petroleum plum, I for one thought it was an extremely courageous act, riddled as telecom and power, to mention just two, were with uncertainties and regulations. Petroleum business of Reliance had by then settled to a smooth rhythm and there was no challenge left in it. A wannabe institution builder wants to start from the scratch, take challenges that come his way head-on and reaches the pinnacle. But somewhere down the line you forgot the lessons imbibed from your late father.
Enormous borrowings on the back of your personal guarantees by your group companies have landed you in trouble. Didn’t you see your father frown at your indiscretion? You heeded the snide remark---hey you can’t manage your body how would you manage our finances---made at you when you addressed road shows in the US in the run-up to Reliance’s American Depository Receipts (ADR) issue. That snide remark rankled so much that you became an avid marathoner. You should have trimmed your borrowings too a few decades later, no matter whether the story behind your new-found enthusiasm for marathon was real or apocryphal, as financial leverage is a double-edged weapon.
Reliance Communications, your mobile venture, had piled up a debt of Rs 48,000 crore in 2019 with revenue reduced to just a trickle---Rs 4,684 crore. In contrast, Mukesh’s Reliance Jio-a newcomer to the telecom business apparently started with your permission by cancelling the no-compete agreement of 2005- is a winner scaling new highs every now and then with the who’s who of social media business including Facebook falling over themselves to get a small sliver of its equity.
You ventured into films and entertainment, thus spreading yourself thin. Didn’t you see your father’s frown of disapproval again? Mukesh’s retail forays including Reliance Fresh, to be sure are unrelated diversifications as well, have been bankrolled by the enormous cash pile of RIL.
To your credit, you have stayed put in India to face creditors unlike others who are having to live with the unedifying appellation ‘fugitives’, having fled the nation when things got too hot for them. You must do more to redeem yourself. Reliance Communication, for example, is before the NCLT under Insolvency and bankruptcy Code (IBC). It might perhaps be win-win and all in the family if it were taken into its fold by Reliance Jio under section 72A of the Income tax Act which makes losses attractive for the acquirer----all unabsorbed depreciation of the amalgamating company become the unabsorbed depreciation of the amalgamated company, thus providing a tax shield for the latter. Ditto for cash losses provided they still have not run their course, i.e. eight years with the amalgamating company in which case the amalgamated company can use them as tax shield to reduce its own profits within eight years reckoned from the year in which the loss was incurred. This liberal dispensation may be dusted and used.
If you cannot beat them, join them goes the cliché. Of course, Jio must see value in the merger transcending the cloying sentimentality of revival of fraternal relationship lest proxy advisory firms censure the move triggering sale of both RIL and Jio shares.
Similar attempts can be made for the other companies in your stable.
Warm wishes
(The writer is a senior columnist and tweets @smurlidharan)
