Bharti Infratel And Indus Towers Seeks Rs 4500 Crore From Voda Idea As Exit Penalty

Bharti Infratel has locked in a tussle with Vodafone Idea over a sum of Rs 4500 crore that it claims the mobile
operator needs to pay it and Indus Towers for vacating tower slots ahead of their contracted tenure. Indus
Towers is a three-way joint venture between Bharti Infratel and the two biggest shareholders of Vodafone Idea — Aditya Birla Group and Vodafone Plc.

Vodafone Idea has exited these tenancies as the merged entity does not require as many slots as were needed by the two companies independently.

A person familiar with the matter told that Bharti Infratel and Indus towers have together raised a demand of about Rs 4500 crore, which is being disputed by Vodafone Idea, over vacating tenancies prematurely. “Vodafone Idea is saying that it need not make any payment since it wasn’t completely exiting the tenancies but converting two tenancies into a single tenancy with higher loading on the same sites,” the person said.

A Vodafone Idea spokesperson said the company would not make any public comments as the matter is between the carrier and its business partners.

The company has already set aside Rs 1000 crore as a contingent liability to cover for any exit penalty that it may have to pay.

Bharti Infratel, too, declined to comment on ‘ongoing discussions with partners’. “Vodafone Idea is a valued partner, and we continue to strengthen our longstanding relationship,” said the company’s spokesperson. Indus Towers is
in the process of being merged with Bharti Infratel.

The dispute comes at a time when both sides are under severe financial pressure. Vodafone Idea clocked losses to the tune of Rs 4950 crore during the quarter ended September 30, 2018, and its revenues fell sequentially by 7 percent to Rs 12,023 crore. The company has cited cash flow issues and sought government permission to defer payment of spectrum-related dues of Rs 5000 crore. It is also currently involved in a complex and costly exercise of integrating the networks of Vodafone and Idea, which it believes will yield cost synergies of Rs 14,000 crore by 2021.

Bharti Infratel, India’s only listed tower company, and Indus Towers are also facing financial pressure due to the consolidation of telecom carriers and the subsequent reduction in the number of private players to just three as
compared with the seven-to-eight, a couple of years ago.

Vodafone Idea is believed to have given the example of some other telcos which have vacated their slots without making any exit payment to tower companies. The tower firms, however, said an exception was made for only
those telcos that had become bankrupt and in turn cite the example of Tata Teleservices having to pay American Tower Corp (ATC) USD 320 million (Rs 2400 crore) as a one-time cash settlement for prematurely winding up some 30,000- odd tenancies after deciding to sell its mobility business to Bharti Airtel.

Another source said the exit penalty being demanded by Infratel and Indus has risen to Rs 4500 crore from an initial estimate of Rs 3000 crore since Vodafone Idea now plans to vacate 88,000 tenancies, against the initially announced 66,000. Bharti Infratel had said in 2018 that it would take Rs 780 crore hit annually due to the exit of Vodafone and Idea Cellular from about 28,000 mobile tenancies. This number is only expected to grow with Vodafone Idea vacating a greater number of tenancies than originally announced.

Most of Vodafone Idea’s tenancies reside on towers of Bharti Infratel and Indus. Typically, a site leasing contract is for 10-15 years with penalties built-in for premature exits. Vodafone Idea and Bharti Infratel shares closed at Rs 36.25 and Rs 280.50, respectively at the BSE on Tuesday. The telcos’ shares have dropped by 30 percent since the merger in late 2018, while the power company’s stock has dropped by 25 percent in the last 12 months.―Gadgets Now