Govt towards merging ailing Voda Idea with BSNL-MTNL

The authorities is towards the merger of beleaguered Vodafone Idea with state-owned BSNL and MTNL, a number of sources have advised TOI. The stand comes weeks after industrialist Kumar Mangalam Birla had stated that he’s “willing to hand over” his 27% stake within the crippled telco to “any entity — public sector/government /domestic financial entity” within the title of “national interest”.

Government sources stated “multiple and strong logical reasons” counsel “outright rejection” of any proposal that will get the debt-laden and loss-making non-public entity throughout the fold of the stateowned corporations, which themselves have a poor monitor document of managing their enterprise and are operational primarily on the again of recurrent authorities bailouts.

“How can we even allow this. It’s almost like having privatisation of profits, and nationalisation of losses?” a senior officer stated.

Birla’s name gave the impression to be in step with a suggestion made in a report of Deutsche Bank. “…the only viable solution is for the government to recapitalise Vodafone Idea 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 had stated in a current observe. Deutsche Bank added that “should this happen, Vodafone Idea’s shareholders would be heavily diluted as government debt is roughly six times the (telco’s) current market-cap, and such a solution might be an acceptable outcome to shareholders.”

The numbers are, nevertheless, stacked towards such solutions. Vodafone Idea, the third-largest telecom operator with round 27 crore subscribers, is underneath heavy debt, owing Rs 96,300 crore to the federal government in deferred spectrum funds, whereas being liable for one more Rs 61,000 crore in direction of AGR liabilities.
The liabilities include curiosity burden of hundreds of crores, with the corporate having one other Rs 23,000-crore financial institution debt. Its losses within the earlier two quarters have been in extra of Rs 7,000 crore.

On the opposite hand, BSNL and MTNL needed to be handed out a Rs 69,000-crore revival bundle round 2019 to maintain them afloat, and are nonetheless struggling to achieve profitability. According to a reply of minister of state (communications) Devusinh Chauhan in Rajya Sabha on August 5, complete liabilities of BSNL stood at Rs 81,156 crore on the finish of FY21 whereas MTNL’s at Rs 29,391 crore.

“It will be a financial mess if all the struggling entities are brought together and merged. What purpose does it serve? In fact, if their operations are brought together, it may turn into an even-bigger financial drain on the exchequer in the coming years if the operations do not turn around,” an officer stated. “In any case, instead of being so considerate for an inefficient private entity, the government may simply focus more on the BSNL/MTNL combine and give them more funds to make them competitive and turn them around.”
NITI Aayog, which has been roped into the difficulty by the telecom division, can be towards the proposal. The authorities think-tank feels that any such measure may see an “erosion in value” of Vodafone Idea, and thus not a lot could also be left within the deal for BSNLMTNL to realize from.

Some of the officers stated cultural variations between the 2 entities are additionally causes which will make a merger “a sure failure”. “BSNLMTNL lacks an aggressive private sector stance, and their employees are aging and saddled with labour and union issues. On the other hand, Vodafone and Idea couldn’t even manage their own merger properly, which was among the reasons behind the joint company’s collapse.”

Another officer stated there are “numerous legal issues” that make it a troublesome deal. “MTNL is listed, and so is Vodafone Idea,” the officer stated. TGI