The cat and mouse game between DoT and Vi must end!!

It’s like a poor connection with its fair share of call diversions, call drops and jammers. On September 15 last year, the government announced a support package for telecom companies. At the heart of the rescue package was the desire to keep Vodafone Idea alive so that a duopoly can be avoided.

Just over a year later, the call is yet to go through and Vodafone Idea’s fate is still hanging by a thread. While the deferment of regulatory payments and spectrum-related payments for a period of four years took off, a lot of immediate burden for the struggling telcos, a delay in the “stake-for-interest” deal between the government and the company is now weakening its ability to effectively compete in the market.

“The government should not delay the equity conversion anymore as the company’s external fundraise is now dependent on this. Once the government finalises its stake, the fundraising will not take much time as the investors and lenders have already completed all the due diligence in the company,” an industry source aware of the development said.

After the government approved the much-required liquidity measures, Vodafone Idea had accepted the option to convert its interest dues worth Rs 16,000 crore on adjusted gross revenue (AGR) and spectrum payments into government equity. However, even after a year of Cabinet approval on telecom sector reforms, the equity conversion by the government in Vodafone Idea has not concluded yet.

While the company remains tightlipped, government sources have been quoted in the media as saying that the company is yet to come up with a business growth plan, 5G rollout, and bring investors to the table. Upon conversion of equity, the government will become the single-largest shareholder in Vodafone Idea with around 33% stake, while promoters’ holding will come down from 74.99% to 50%.

“All the approvals from the concerned departments like Sebi and the finance ministry are in place, and the nod is awaited from the higher authorities,” sources aware of the matter said.

In contrast, Vodafone Idea chief executive officer Akshaya Moondra last month said the company has not heard anything from the Department of Telecommunications post April on the equity conversion. According to sources, while there has not been any formal communication between the government and the company, both the sides are engaged in talks informally.
Last month, the company had even clarified that there is no bar on the government to convert the debt into equity even if the share price is below the par value of Rs 10.

In July, communications minister Ashwini Vaishnaw had said the government dues’ conversion to equity in Vodafone Idea will take time as there are some technical issues. A few days later at a telecom investors’ roundtable summit, the minister said there will be good, fresh investment coming into Vodafone Idea looking at its current growth prospects.

No doubt, the company has shown five quarters of consistent growth in revenues but it can’t be denied that it has been seeing a churn in subscribers on a net basis and sitting on a huge pile-up of debt with muted cash flows. Further, its 4G additions have been about 1 million subscribers quarterly compared with peers Bharti Airtel at 5 million and Jio at about 8 million on an average in recent quarters.

At the end of the July-September quarter, Vodafone Idea’s gross debt (excluding lease liabilities and including interest accrued but not due) was at 2.20 trillion, comprising deferred spectrum payment obligations of1.36 trillion, AGR liabilities of 68,590 crore that are due to the government, and debt from banks and financial institutions of15,080 crore.

According to analysts, the company would have started showing some growth by now, had the funding been in place. “If the investors/ bankers are waiting for the government (to finalise its stake in the company), it (the government ) should not hold this anymore, given that the delay is diluting the purpose for which the support package was rolled out,” an industry executive said on the condition of anonymity. “It is the government and not the company that is in dominant position at present, and therefore it is the duty of the government to resolve the matter proactively and clear the air around this,” the executive added.

Business sustainability for some telcos, especially Vodafone Idea, came into question in late 2019 when a Supreme Court bench headed by Justice Arun Mishra announced its verdict in the infamous AGR case that heaped on extra liabilities of around `40,000 crore on the company.

The SC decision not only increased the debt burden on the company but had also weighed on all hopes of the promoters of reviving the company, which had been facing cut-throat competition from Reliance Jio that entered the market in 2016. Soon after the judgment, Aditya Birla group chairman Kumar Mangalam Birla famously said the company would “shut shop” unless the government did something about the liabilities, stressing that it made no sense to “put good money after bad”.

The government’s rescue measures are now in place, which according to experts, has postponed the inevitable for Vodafone Idea as the absence of that would have forced the company to shut its business. Even the promoters have infused 5,000 crore into the company this year, against its target to raise25,000 crore that has been pending for more than two years now.

Sources also say the government wants more skin in the game for promoters before it goes ahead with its plan to convert the interest dues into equity. “Promoters putting in Rs 5,000 crore in the business shows that they are interested in running the business, otherwise they would have taken the company to NCLT (National Company Law Tribunal) three years ago,” the executive quoted above said.

Even with constrained cash flows, the company participated in the recent spectrum auctions and bought 5G and 4G spectrum worth 18,790 crore. It even paid the first annual instalment of1,680 crore to the government. In the absence of funding, however, a delay in 5G launch would also come at an expense of market share for Vodafone Idea, analysts said. Financial Express