Powered by
Sponsored by

Is Kumar Mangalam Birla willing to sell stake in ailing Vodafone Idea?

VIL driven to irretrievable point of collapse without immediate govt support: Birla

vi-birla Hit with a hefty bill of Rs 58,000 crore in adjusted gross revenue to be paid to the government, VIL is struggling to raise funds and stay afloat | File

It was on August 31, 2018, that Vodafone, the then second largest telecom operator in the country, and rival Idea Cellular, owned by the Aditya Birla Group, completed their merger to create India’s largest telecom player Vodafone Idea Ltd (VIL). That was a time when there were several mergers and exits in the telecom industry in the wake of a fierce price war unleashed by new entrant Reliance Jio. 

Little less than four years later, VIL, hit with a hefty bill of Rs 58,000 crore in adjusted gross revenue to be paid to the government, is struggling to raise funds and stay afloat.

Last week, the company got another setback after the Supreme Court dismissed all the pleas seeking recalculation of AGR dues. Last year, the Supreme Court had ruled in favour of the government and had given a 10-year timeframe for the telecom companies to pay their AGR dues. Bharti Airtel and Vodafone Idea earlier this year moved the apex court seeking a recalculation of AGR dues as they argued there were mathematical errors in the amount calculated by the department of telecom. 

The Supreme Court, dismissing the telecom companies’ plea, said they have no choice but to pay up. Vodafone Idea, which has lost millions of customers since the merger and has made huge losses, is struggling to stay afloat. 

Now a letter purportedly written by Kumar Mangalam Birla, the chairman of Vodafone Idea, to the government has surfaced. Addressing Cabinet Secretary Rajiv Gauba, dated June 7, 2021, Birla said in the letter that he is willing to give up his stake in the company.

“It is with a sense of duty towards the 27 crore Indians connected by VIL, 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 wrote. 

Vodafone Idea has been looking to raise funds to the tune of Rs 25,000 crore to sustain its operations. While names of several financial investors have been speculated in the last few months, a deal is yet to fructify. 

Birla has sought support from the government and clarity on the long-standing issues related to AGR payments, moratorium on spectrum payments and a floor pricing. “To actively participate in the fund-raising, the potential foreign investors (mostly non-Chinese and we, are yet to approach any Chinese investors) want to see clear government intent to have a three player telecom market (consistent with its public stance) through positive actions on long-standing requests such as clarity on AGR liability; adequate moratorium on spectrum payments and most importantly, a floor price regime above the cost of service,” said Birla in the letter.

He further added that in the absence of definitive steps in this regard, the potential investors have “understandable hesitation to invest.”

In the year ended March 31, 2021, VIL reported a net loss of Rs 44,233 crore, compared with a year ago loss of Rs 73,878 crore. The reduction in loss was aided by lower operating expenses. 

“Without immediate active support from the government on these three issues (certainly by July’21), VIL’s financial situation will drive its operations to an irretrievable point of collapse,” Birla has emphasised in the letter. 

Credit ratings agency India Ratings and Research, in its report last week, said a timely fund-raising and arresting decline in subscriber base would determine if VIL continues with its national footprint or reduces to a strong player in niche markets. “VIL has been losing market share in almost all the circles and the telco has been preserving financial liquidity as evident from the moderation in its capex intensity and lukewarm participation in the recent spectrum auctions. However, FY23 onwards, the breakeven EBITDA (earnings before interest, taxes, depreciation and amortization) required by VIL to honour its debt and regulatory obligation and towards capex would be fairly elevated,” said India Ratings. 

In a recent report, Deutsche Bank had called for a merger between BSNL and Vodafone Idea. The Deutsche Bank analysts said a state control and recapitalisation would save the ailing telecom company. “The only viable solution is for the government to recapitalise Vi by converting its debt into equity, preferably while merging it with BSNL, and then providing it a clear commercial mandate based on profitability targets and incentives,” it said. 

At the end of the fourth quarter, Vodafone Idea had a subscriber base of 267.8 million, compared with 408 million subscriber following the merger of the two companies back in 2018.

Its gross debt (excluding lease liabilities) as of March 31, 2021 stood at Rs 1.80 lakh crore. 



📣 The Week is now on Telegram. Click here to join our channel (@TheWeekmagazine) and stay updated with the latest headlines