India's richest man is muscling into the country's highly competitive telecommunications market, and his first victim could be his own brother.
A deep-seated rivalry between Indian billionaires Mukesh and Anil Ambani was amplified this week when Reliance Communications Ltd., one of the country's major wireless carriers, said it is headed toward a bond default.
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Reliance Communications, also known as RCom, late Monday disclosed it had missed a $9.75 million interest payment on $300 million in U.S. dollar bonds it sold in mid-2015. The company has seven days to make the payment, but investors and analysts say RCom is unlikely to meet its obligations. The company has 457.5 billion Indian rupees ($7.08 billion) in outstanding debt.
Controlled by 58-year-old billionaire Anil Ambani, the telecommunications company has languished in recent years in India's crowded wireless market, which has one of the world's lowest telecom tariffs. RCom borrowed heavily to fund its growth, creating a pile of outstanding debt.
RCom's troubles worsened over the past year after rival Reliance Jio Infocomm Ltd.--run by Mr. Ambani's richer and older brother Mukesh-- entered the wireless industry and began offering free call and data plans, causing RCom to lose sales and market share.
Both their companies trace their roots to conglomerate Reliance Group, which was founded by their late father, Dhirubhai Ambani. After the patriarch's death from a stroke in 2002, Mukesh Ambani was effectively left in control of the family business. The brothers clashed over how to run it, and Anil Ambani pressured his older sibling into giving up RCom and other smaller pieces of the empire in 2005.
Over the years, Mukesh Ambani rose up the ranks of India's wealthy to become the country's richest man, with an estimated net worth of $40.4 billion, according to Forbes. Anil Ambani, on the other hand, is ranked 45th among India's richest with a net worth of $2.7 billion, partly a result of RCom's financial troubles.
RCom was originally Mukesh Ambani's project and it grew by slashing the prices for calls. While the company was never able to gain a top market share, its rates shook up the industry, triggering radical cost-cutting and consolidation.
With Reliance Jio, Mukesh Ambani appears to be following a similar playbook. Despite being a latecomer, his company was able to sign up more than 100 million users by basically giving unlimited 4G access for free for months. This triggered an unprecedented use of data across India.
RCom previously came close to defaulting on some convertible bonds in 2012, but ended up getting a lifeline that year from some Chinese lenders, including China Development Bank, who remains a large creditor.
In recent months, as pressure has mounted on the company, RCom has tried to work out a debt-restructuring plan to avoid filing for bankruptcy.
The company has proposed cutting its total debt and repaying some of its obligations by selling assets, including cell towers and real estate. It has also proposed converting some debt into equity and giving stakes to its creditors. RCom has so far reached a deal to sell a noncore satellite-television business.
In its Monday announcement, RCom pointed to its restructuring plans and said the company is under a"standstill period" until December 2018. "Accordingly, for the time being, no payment of interest and/or principal is being made to any lenders and/or bondholders," the company said.
The bonds RCom missed the interest payment on were recently quoted at 40.5 cents on the dollar, indicating that investors see a high likelihood of default. The company's shares Tuesday fell 2% to near a record low, giving RCom a market value of roughly $600 million.
Eric Bellman and Debiprasad Nayak contributed to this article.
(END) Dow Jones Newswires
November 07, 2017 07:11 ET (12:11 GMT)