Birlas may let Voda Idea go insolvent if government doesn't help

    The recent SC order leaves Vodafone Idea staring at AGR dues of over Rs28,000 crore in additional licence fee.

    Last Updated: Nov 14, 2019, 11.57 AM IST
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    MUMBAI: Aditya Birla Group will not infuse any fresh equity into Vodafone Idea Ltd, its telecom joint venture with Vodafone Group of UK, and let it opt for insolvency if the government does not provide substantial relief, including on the telco's adjusted gross revenue (AGR)-based dues, which could be over 39,000 crore, senior executives aware of the matter said.

    "The telecom business seems to be making money for everyone else except the players. It is unviable and unsustainable and will only drag down the group's profitability. We need to rethink our capital allocation better in a difficult business environment," said a senior group executive.

    A group official said the Indian conglomerate agreed with the comments of Vodafone Group CEO Nick Read on Tuesday.

    "If you don't get the remedies being suggested, the situation is critical," Read said after Vodafone Group's quarterly results on Tuesday. "If you're not a going concern, you're moving into a liquidation scenario - can't get any clearer than that."

    Read added that without any government relief, the future of the India JV was in doubt, and that the global telco won't be infusing any further equity into the venture.

    He sought to go back on some of his remarks on Wednesday. In an apology letter to the Indian government, Read said his comments were distorted and thanked the administration for setting up a committee of secretaries to devise a relief package for the stressed sector.


    Little Interest from Banks
    This followed the government conveying its displeasure to the company at his remarks.

    The Vodafone Idea stock ended 7.5% lower at Rs 3.70 on the BSE on Wednesday.

    The Aditya Birla Group spokesperson didn't respond to ET's queries. The Vodafone Idea (VIL) board is meeting on November 14 to consider the company's fiscal second quarter results.

    The recent Supreme Court order that allowed the inclusion of non-core items in the definition of AGR has left Vodafone Idea staring at dues of over Rs28,000 crore in additional licence fee. In addition, the telco faces more than Rs11,000 crore in spectrum usage charge dues, plus interest and penalties on both heads.

    The troubled telco has a debt of over Rs 99,000 crore. It clocked losses of around Rs 5,000 crore and revenues of Rs 11,300 crore in the quarter ended June 2019.

    In the past month or so, Vodafone Idea has approached at least half a dozen investment banks to raise money from the overseas or domestic market, said bankers involved in the discussions. Some of those banks even tried reaching out to global investors. But there was not much appetite and so banks showed little interest in arranging any bond sale or syndicating any loan.

    Vodafone Idea did not reply to ET's email query till press time.

    Vodafone Plc on Tuesday said operating loss from its India business widened to 692 million in April-September from 133 million in the same period last year. It also cut the Indian unit's "carrying value" to zero, and said that Vodafone Idea doesn't contribute anything to the UK company's share price.

    There have been multiple meetings between Aditya Birla Group chairman Kumar Mangalam Birla and senior government officials for looking at a relief package that would include AGR dues. Read too met government officials during his last visit to India, and sought relief from high taxes and spectrum payments.

    ET reported in its November 13 edition that a panel of secretaries set up to suggest relief measures for the sector is likely to recommend a reduction in the licence fee paid by telecom companies to 5% from 8%, and a two-year moratorium on spectrum payments.

    However, incumbent telecom operators, including Vodafone Idea, are unlikely to be satisfied with only these measures, and need the committee - headed by cabinet secretary Rajiv Gauba - to take a speedy call on providing relief on the AGR-related dues, besides finding a mechanism to raise tariffs. Vodafone Idea is also expected to file a limited review petition against the SC order, seeking a waiver on penalties and interest, besides the deletion of some non-core items from the AGR definition.

    Analysts also fear for Vodafone Idea's survival in the absence of any government help.

    "Assuming no near-term respite in the form of supportive measures, the odds are against the possibility of Vodafone Idea's survival. It looks increasingly plausible to believe that in absence of any regulatory or policy-driven relief, the Indian telecom space may get reduced to a two private player market," said SBICap Securities in a recent report. It was referring to Reliance Jio and Bharti Airtel as the two survivors, besides two state-run telcos.

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