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The promoters of Vodafone Idea, India’s beleaguered third-largest service provider, are putting in last-ditch efforts to save the company from bankruptcy.
Last week Kumar Mangalam Birla, Chairman of Aditya Birla Group and Nick Read, Vodafone Group’s Chief Executive Officer, met India’s Department of Telecommunications (DoT) officials to explore options to rescue Vodafone Idea from imminent closure.
Birla Group and Vodafone Group own 27.6% and 44.3% stake in the joint venture. Both the promoters have refused to put in more funds in the company, though Birla offered the Group’s stake to the Government earlier this year to ensure that the service provider continues to operate.
Vodafone Idea is under a massive debt of INR1900 billion ($29 billion), which includes Adjusted Gross Margin (AGR) liabilities and spectrum payments of INR1600 billion ($22 billion). India’s Supreme Court dealt a massive blow to the telcos when it ruled against them in the AGR judgment in 2019. The telcos own INR935 billion ($12.69 bn) as AGR dues to the Government. Further, there is disagreement regarding the calculations. The pleas of the telcos to recalculate the dues have not been approved by the courts.
The company has been trying to find investors for quite some time now but without any success. Media reports suggest that Vodafone Idea was in talks with Google and Apollo Global earlier this year, but they were unsuccessful. On the other hand, the competitive intensity in India is high, which means that it is unable to hike tariffs. In this situation, Vodafone Idea needs urgent financial help to survive. However, the delay in finding investors is eroding its subscriber base as its uncertain future is driving the customers’ away.
Several media reports show that the Indian Government is working on a relief package to rescue Vodafone Idea. There is a possibility that the Government extends the deadline for AGR dues giving more time to Vodafone Idea to acquire funds. There is a possibility that the Government might acquire a stake in the service provider. There were reports that the Government was also exploring merging Vodafone Idea with state-owned Bharat Sanchar Nigam Limited.
The Indian Government is keen that Vodafone Idea survives because its collapse will effectively reduce the Indian market to a duopoly. The collapse of Vodafone Idea does not augur well with India’s image as a destination for foreign investment.
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