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Pressure Grows On Vodafone’s India Venture After Court Ruling

Vodafone’s Indian venture has been dealt a severe blow after the country’s Supreme Court slammed the government for proposing a relief plan which would allow telecoms groups to pay back billions of dollars in historic fees over a long period.

The court on Wednesday chastised telecoms companies and the government for violating its October verdict stating they must pay $13bn in retrospective levies and penalties within weeks and called the government’s decision to allow carriers to self-assess their dues as “sheer contempt”.

On Monday New Delhi had proposed that companies should be given 20 years to pay what they owed, stating they were “conscious of the fact that any immediate adverse impact on the functioning of the [industry] would not only have an adverse impact on the overall economy . . . but would also seriously harm the interest of the consumers”.

Vodafone Idea and Bharti Airtel have submitted to the Department of Telecommunications that the fees they owe are significantly less than those determined by the court, at $7.4bn and $3.5bn respectively.

However Judge Arun Mishra, who threatened to send the managing directors of the telecoms companies to jail, described a 20-year repayment period as “unreasonable” and said companies were trying to “hoodwink” the court. He has adjourned the matter for two weeks.

The fiery proceedings amplified anxiety in the Indian stock market which has already been spooked by the near-collapse of Yes Bank, one of the country’s biggest private lenders, and coronavirus.

Following the hearing, shares in Vodafone Idea plunged 35 percent while Bharti Airtel fell 6.4 percent. Shares of banks exposed to Vodafone Idea also tumbled, with one private lender, IndusInd Bank, plunging by as much as 23 percent.

Although the court is yet to make a final decision on the government’s proposal, the scathing reception appears to leave few options for the company, a partnership between Kumar Mangalam Birla’s Aditya Birla Group and the UK-based operator, and is fuelling fears that the indebted company will collapse.

“Vodafone must be feeling awful, the situation is quite precarious,” said Mahesh Uppal, director of Com First, a communications consultancy.

If the court did reject the government’s application for a 20-year grace period, Mr Uppal said that “clearly things will get pretty tough for Vodafone. They will be looking at an exit”.

In the event of a Vodafone Idea collapse, Indian banks will have to undertake massive write-offs at a time when they are already under greater scrutiny following the takeover of Yes Bank by the Reserve Bank of India earlier this month.

“The exposure of all these banks is so high to the telecoms sector, if Vodafone is not able to get out of this mess, it will ensure a significant loss of confidence,” said Abhimanyu Sofat, head of research at financial services company IIFL in Mumbai.

Vodafone Idea declined to comment.

The company is saddled with debt following a brutal price war with Reliance Jio, whose entry in 2016 upended India’s mobile sector by offering free calls and data plans at rock-bottom rates.

Jio, which is owned by Indian tycoon Mukesh Ambani, stands to gain from the upheaval. It has already paid its dues of $2.6m, a smaller sum because it started operations just four years ago.

Private telecoms companies in India, once posterchildren of the country’s liberalisation drive, are suffering severe financial stress as they worked to fend off Jio while paying stiff licence fees.

―Financial Times

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