Government Sets In Motion The Great Telecom Rescue Act, Mulls Relief Package For Entire Industry

The government is considering a relief package for the telecom industry that’s laden with debt and hit by earnings woes amid a two year-long price war, after certain companies sought support, said people with knowledge of the matter.

Kumar Mangalam Birla, chairman of the country’s largest telecom operator, Vodafone Idea Ltd (VIL), met top finance ministry officials in this regard they said adding that officials in this regard, they said, adding that it’s seeking a deferral on Rs 900 crore that it has to pay the government in March.

A senior official told ET that Birla appraised officials about the danger of Vodafone Idea, which posted a loss of Rs 4,974 crore for the quarter ended September 2018, missing a Rs 900-crore spectrum linked payment. One official said Birla had sought to make the payment in 12 instalments. Finance and telecom ministry officials met subsequently to discuss the health of the industry and devise a rescue plan, a second official told ET.

The government feels sentiment would be damaged if the largest phone company wasn’t able to make payments on time. “We don’t want a default — we will work out something,” said another of the officials cited above, adding that a staggered payment plan was an option. It’s unlikely that the government will offer relief to just one company and an industry-wide solution may be considered.

The company is facing intense pressure on its already wafer-thin margins. Formed by the merger of the country’s second- and third largest telcos, Vodafone India and Idea Cellular NSE 5.19 % , the resultant entity posted a loss of Rs 4,974 crore and an Ebidta (earnings before interest, taxes, depreciation and amortisation) margin of 8.1% for the quarter ended September, raising concerns about its ability to service debt that has ballooned to more than Rs 1.15 lakh crore. Bharti Airtel NSE 0.23 % , moving down to India’s No. 2 after the merger, posted a 65.4% fall in quarterly profit in the September quarter as it faces similar pricing pressure amid aggressive competition from Reliance Jio Infocomm.

The Mukesh Ambani-controlled Jio, which has upended the market since its entry in September 2016 with free calls and cheap data, reported its fourth straight profitable quarter with net income at Rs 681 crore. “Vodafone Idea’s results reinforce our growing concerns over the company’s high net debt levels and rapidly diminishing Ebitda,” JP Morgan’s Asia-Pacific equity research team said in an internal note. Even though Vodafone Idea has announced an equity infusion of Rs 25,000 crore, with 71% coming from the promoters, investors feel this could just be a temporary respite. The announcement of modalities regarding this equity infusion is expected on Wednesday at an investors’ meet. The options being considered for the fund infusion include a rights issue. “If successful, it would be positive and would provide funds for the next 12-18 months’ CapEx,” brokerage firm Jeffries said in a note.  – The Economic Times