In what is seen as a major relief for Vodafone Idea, the Supreme Court has said that the government can review and reassess the struggling telecom company’s AGR (adjusted gross revenue) dues up to the financial year 2016-17.
On October 27, a division bench of the Supreme Court had said that the Centre was free to reconsider Vi’s appeal to set aside the additional AGR demand of Rs 9,450 crore that the Department of Telecommunication (DoT) had raised. The latest order, which opens doors for a comprehensive reassessment of Vi’s AGR dues up to FY 2016-17, is a huge positive development for the telecom company, given its financial constraints.
In 2020, the Supreme Court had given a big jolt to telecom companies, ruling in favour of the government that the companies would have to pay their massive AGR dues—including interest and penalties—over a 10-year period. Last year, their re-computation plea was also rejected.
Vodafone Idea was among the worst hit, owing around Rs 83,400 crore to the government. Since that verdict in 2020, the government has offered some support in allowing some dues to be converted to equity. The government now holds 49 per cent equity in Vi, after it converted Rs 36,950 crore in spectrum dues into equity earlier this year.
This government stake in Vi and its potential impact on 200 million customers, was perhaps taken into consideration in the latest Supreme Court ruling that allowed a review of the AGR dues.
Analysts at Motilal Oswal said last week that the verdict was a “material positive” for Vi, as it could lead to a significant reduction in its AGR dues.
“The potential AGR relief underscores the government of India’s commitment to maintaining a 3+1 market construct in the Indian telecom sector and could also facilitate Vi’s long-pending debt raise. This, in turn, would support the continuation of Vi’s Rs 50,000-55,000 crore capex plans,” the analysts said.
In need of funds, Vi raised Rs 18,000 crore through a follow-on share sale in 2024. Earlier this year, the company had also raised a little over Rs 1,900 crore via a preferential allotment of shares to promoter companies.
However, the company has not been able to raise the Rs 25,000 crore in debt that it has been looking to for some time now, as the lenders chose to wait and watch developments.
Earlier this week, a news report indicated that private equity firm Tillman Global Holdings was in talks to invest around $4-6 billion and take operational control of Vi.
The apex court ruling will also be a big positive development towards these fundraising plans of the company.
However, the AGR dues issue is just one challenge for Vi. The company has been losing customers consistently to its much stronger competitors, Reliance Jio and Bharti Airtel. Still, subscriber losses have been coming down as the company continues to improve its network coverage and roll out 5G in more markets. In the April-June quarter, for instance, it lost 0.5 million customers, still significantly lagging behind rivals Airtel and Jio.
Analysts also point out that AGR dues are only one part of its dues.
“Even excluding AGR dues, Vi’s debt of Rs 1.18 lakh crore (largely pertaining to spectrum payment) is high, considering the current EBITDA,” said Pranav Kshatriya of Emkay Global Financial Services.
He therefore expects the government to take a “holistic view” on the solvency of the company and accordingly structure its relief. Kshatriya says the government will need to consider plans towards reducing the spectrum debt too.
“With this (Supreme Court ruling), the government will now have enough wiggle room to create a plan for Vi’s long-term sustainability,” he said.
On the Supreme Court ruling last week, Vi said it would work closely with the DoT to resolve the matter. On the recent reports of the PE interest in taking operational control, the company hasn’t confirmed, only stating it keeps exploring various opportunities and options to raise funds.
Vi’s shares, meanwhile, have gained more than 12 per cent in the past month, compared with the 2.7 per cent gains in the BSE Sensex, in the hopes of positive developments ahead.
