The chairman of the troubled telecom company Vodafone Idea, Kumar Mangalam Birla, in a surprising move just made public, has expressed willingness to give up his promoter stake in the company to the government. Motive: He fears a collapse.
This is the first time a promoter of this joint venture has made such a request.
In a letter to Union Cabinet Secretary Rajiv Gauba on June 7, Birla expressed willingness to offer his stake in Vodafone Idea to any state-owned or “domestic financial entity” to keep the company afloat. “It is with a sense of duty towards 270 million Indians connected by Vodafone Idea Limited, I am more than willing to hand over my stake in the company to any entity-public sector/government/domestic financial entity or any other that the government may consider worthy of keeping the company as a going concern,” Birla said in his letter.
Vodafone Idea is saddled with a debt of 1.8 trillion rupees, out of which it has to pay an outstanding sum of around 504 billion rupees as adjusted gross revenue. It has so far paid 78.54 billion rupees out of a total of 582.54 billion rupees. Other major liabilities include deferred spectrum obligation of 962.70 billion rupees and debt of 230.8 billion rupees from banks and financial institutions.
India’s Supreme Court in 2019 had widened the scope of adjusted gross revenue to include income from non-core items. This had affected legacy companies such as Vodafone Idea and Bharti Airtel. The two companies had approached the Supreme Court for correction in the government calculations but their plea was rejected.
Birla’s letter said that investors are not willing to put out money in the absence of clarity over adjusted gross revenue dues, an adequate moratorium on spectrum payments and a floor-pricing regime above the cost of service.
Vodafone Idea had recently approached the telecom department seeking an extension of the two-year moratorium on paying spectrum fees by one more year. As for telecom tariffs, the company wants the government to fix a floor price and favors a tariff hike to relieve the stress faced by the sector. India has one of the lowest mobile phone tariffs in the world.
The letter asserted that without immediate government support on these three issues, Vodafone Idea’s financial situation will come to an “irretrievable point of collapse.”
Vodafone Idea had earlier tried raising funds by bringing in financial investors. But even after several rounds it has not been successful. There were reports of the company holding discussions with US private equity group Apollo Global Management to raise up to $3 billion. The company also expects to raise up to $1 billion from the sale of its fixed-line broadband subsidiary, optical fiber unit, and data centers business.
Birla owns an over-27% stake in Vodafone Idea, while UK-based Vodafone Plc holds over 44%. The current market capitalization of the joint venture is over 240 billion rupees. The two promoters have decided against infusing fresh funds into the company. Vodafone Plc has already written off all its investment in the joint venture following continuous losses.