Problems continue to mount for cash-strapped Vodafone Idea, with Aditya Birla Group Chairman Kumar Mangalam Birla writing to the Union government that he is willing to give up his stake. At its board meeting on Wednesday, August 4, Birla stepped down as a Non-Executive Director and Non-Executive Chairman of the company.
Parent firm Vodafone Group has also reiterated and ruled out the infusion of any more equity into the struggling telco. Vodafone Group CEO Nick Read, in a recent analyst call, said that Vi is facing a high-stress situation and while the Group is providing practical support, it won’t be putting any additional equity into it.
Vodafone Idea has raised concerns about its ability to be a going concern. In response, Read said the company has “highlighted very clearly, they are dependent as a going concern on refinancing debts that are coming in terms of monetisation of assets, in terms of government support, AGR or floor pricing, etc., and raising funds.”
He added that while they are providing support, there will be no further equity from it. "It is...a highly stressed situation, a difficult situation that they are trying to navigate. I mean, we as a group try to provide them as much practical support as we can but I want to make it very clear, we are not putting any additional equity into India," said Read.
The telco has raised concerns about its financial viability in the Supreme Court and has intimated the government also about it. Kumar Mangalam Birla, chairman of Aditya Birla Group (ABG), had offered to give his stake in Vodafone Idea Limited to the government. He made the offer to hand over the stake in a letter written in June to Cabinet Secretary Rajiv Gauba.
On July 23, the Supreme Court in a ruling didn’t give any relief to Vi over its adjusted gross revenue (AGR) liability of Rs 58,254 crore out of which the company has paid Rs 7,854.37 crore, and Rs 50,399.63 crore is outstanding. Vi reportedly has a total debt of around Rs 1.8 trillion, including deferred spectrum obligations and AGR dues.
In the letter, Birla, who holds around 27% stake in Vi, said investors are not willing to invest in the company in the absence of clarity on AGR liability, sufficient moratorium on spectrum payments, and floor pricing regime above the cost of service. Birla added that without immediate active support from the government on the three issues by July, the financial situation of Vi will come to an "irretrievable point of collapse”.
The government is reportedly preparing a relief package for the telecom sector but has no plans to respond to Kumar Mangalam Birla’s offer of handing over the group’s stake in Vodafone Idea to a public sector or domestic financial entity. “The telecom department is firming up a relief package to allow surrender of spectrum, reduce bank guarantees, phase out levies and prospectively define AGR to provide relief to the sector as well as Vodafone Idea,” a senior official told the Economic Times.
Telecom analysts and government officials maintain that with the government struggling to offload its own stake in different public sector companies across the board, it is unlikely that it will take over another company, even if it is at no cost. So, Vi will need to raise funds within the next few months just to sustain daily operations, and it will also need to use the funds raised to gradually pare down the debt, as per experts.
It is important to note that Vodafone Idea has been seeing massive subscriber losses as well, and the telco’s subscriber base fell by 42.8 lakh users in May, according to data from the Telecom Regulatory Authority of India (TRAI).
There has been a need to increase the Average Revenue Per User (ARPU) in the telecom sector as well, but Vodafone Idea significantly lags behind competitors Airtel and Reliance Jio, with ARPU in Q4 of FY21 at Rs 107. In comparison, for the first quarter of FY22, Airtel reported an ARPU of Rs 146 and Reliance Jio at Rs 138.2. Losses, too, have been mounting, with Vi reporting a consolidated net loss of Rs 6,985.1 crore for the January-March quarter.
Following the news of Kumar Mangalam Birla writing the letter to the Union government, Vodafone Idea’s shares have been hammered down. The company’s shares tanked over 10% on August 3, and plunged 18.51% on August 4, after the report that the government did not plan to respond to Birla's letter.
However, there have been calls for the government to take over or help the company so that the industry is not left with a duopoly. During an analyst call on August 4, Airtel CEO Gopal Vittal said that a country like India needs three private players in the telecom sector, and hoped the government would take measures to offer relief to the industry that is facing "serious financial stress".
"I think just from a national perspective, it would be appropriate to see an industry structure where three players not just survive but thrive and of course the government player is always there,” he said.
"There is clearly a situation of serious financial stress in the industry and we have seen one of the players actually saying to the government that they may not be able to pay their dues coming up in March 2022. We hope that the government does something to provide some relief to the industry," Vittal said. Flagging the "extremely low" ARPU, Vittal said that the level needs to rise to Rs 200 and eventually Rs 300.
With agency inputs