An Ambani declares insolvency in London court

Anil Ambani

But Judge David Waksman refuses to believe him, orders Anil Ambani to deposit $100 million six weeks.

Refusing to accept that Anil Ambani’s net worth was negative and that his extended family members would not pitch in with money, Judge David Waksman of the Court of London last week ordered the Indian businessman to deposit $100 million six weeks.

This follows the litigation filed by the consortium lenders, which include the Industrial and Commercial Bank of China, the Exim Bank of China as, well as the China Development Bank, toward recovering $680 million.

Ambani, who stood as a personal guarantor for the debt-refinancing loan of $925 million made to his company Reliance Communications in 2012, blankly denies having done so. His barristers have attributed the downturn in the fortunes of the telecom industry and the issues associated with licensing to have been solely responsible for the banks’ losses. The bankers are now confident about a favorable outcome.

Our perusal of the data relating to the market capitalization of Reliance Communications reveals many things have gone into the making of this case, other than mere regulatory changes in the telecom industry. The market capitalization of Reliance Communication, which was Rs. 553 billion in 2010, had declined to Rs.138 billion in 2012, due to various reasons.

The company took the loan in 2012 from the consortium of Chinese bankers, with an explicit purpose of debt refinancing. Given the low-interest rates prevalent in the international economy, the company saw it as a big opportunity. This carry trade, through its impact on the debt profile of the firm, had a favorable outcome with the market capitalization of Reliance Communication, tripling to over Rs 430 billion in 2014, just in two years.

Ever since the slowdown in the economy, coupled with the competition in the telecom, (for which free offers made by his elder brother Mukesh Ambani, too, played an important role) saw the fortunes of Reliance Communication collapsing. The latest market capitalization is at a mere 2.12 billion rupees, or just $29 million. It is far lower than the $680 million being claimed by the banks.

Confident of a favorable turn of fortunes for his firm in 2012, if Anil Ambani had provided for a personal guarantee, then, no doubt, matters would be weighed against him.

The main fact which stands out in this external commercial borrowing done is that, instead of the usual European, American or Japanese lenders, the Chinese have emerged as the lenders. A recent publication of the World Bank, titled “Bankers Without Borders,” has drawn attention to the changing terrain of international banking.

In another case, it is worth pointing out that, when the Supreme Court of India had threatened that it would put Anil in jail if the $5.5 billion arrears owed to the Swedish firm Ericsson AB wasn’t paid, Mukesh made the payment, saving him from the embarrassment.

In November last, Anil Ambani had quit from the post of the chairman of Reliance Communication Ltd. The lenders, led by the SBI group, had taken Reliance Communication to the National Company Law Tribunal (NCLT), the insolvency court in India. This was followed by the appointment of Anish Nanavathy as a Resolution Professional toward managing the assets of the firm.

The Insolvency and Bankruptcy Code 2016 got a fillip with the RBI asking the banks to take the 12 largest borrowers, who accounted for 25 percent of the non-performing assets of the scheduled commercial banks of the country to the insolvency process.

But the rules related to cross-border insolvency are yet to be finalized in terms of the convention of United Nations Commission on International Trade Law (UNCITRAL). It seems that Anil Ambani and his firm are going to be chased in these cases on both fronts.

Ambani and his company apart, the large scale external commercial borrowings mobilized by different Indian corporations, as revealed by the data of the Bank for International Settlements, is beset with exchange risks, particularly for firms borrowing in dollars toward investing in the non-tradable sector within the country.

Indian corporations borrowing abroad may want to hedge against possible exchange rate changes. Otherwise, the credit rating of the country in the international financial markets would be at stake.

(S. Krishnakumar teaches economics at Sri Venkateswara College, University of Delhi, New Delhi.)

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