Vodafone Idea Ltd will dip into its modest reserves and tap short-term loans to pay part of the Rs. 44,000 crore it owes the government in licence fee and spectrum usage charge dues, two people aware of internal discussions said, after the telecom operator’s promoters declined to infuse more capital into the company.
The Supreme Court’s 14 February order directing telcos to pay up more than Rs. 1 trillion by 17 March hits Vodafone Idea the most, given that it only had Rs. 12,530 crore of cash and equivalent reserves as of December 2019, while bearing gross debt of Rs. 1.2 trillion.
“The company is still working on the amount it will offer to pay towards part payment of AGR (adjusted gross revenue) dues,” one of the two people cited above said on condition of anonymity. “The company is working towards determining a sizeable number in accordance with the Supreme Court directive. However, the promoters, Aditya Birla group and Vodafone Group Plc, will not infuse any additional capital and the entire payment will be arranged by the company from its existing reserves and a potential short-term loan.”
The company has been examining various avenues to raise funds over the last year. In May, it raised ₹25,000 crore through a rights issue, and is working on monetizing its 11.15% stake in Indus Towers and nearly 160,000km of fibre network.
The apex court on Friday pulled up telcos and the department of telecommunications for failing to comply with its 24 October order to pay up over Rs. 1 trillion by 23 January.
In an exchange filing on Saturday, Vodafone Idea said it was in the process of assessing the dues it would be able to pay the government, adding that it would pay this in the next few days.
After a 14-year-long legal battle, in October the apex court upheld the government’s broader definition of revenue on which it calculates levies on telecom operators. Vodafone Idea, Bharti Airtel and Tata Teleservices Ltd last month filed modification pleas seeking more time to pay AGR-related dues, which the apex court had agreed to hear.
A 14 February report by brokerage Motilal Oswal said a stressed balance sheet makes it difficult for Vodafone Idea to cough up such resources within the limited time available. The company’s failure to make the payment will have far-reaching ramifications, the report said, with “nearly 300 million subscribers (about 25% of India’s population) facing the annoyance of network shutdown and churn, while about 13,500 employees could face job losses. This is merely the direct impact, while the indirect impact on multiple vendors and other stakeholders could be even worse”.
Kumar Mangalam Birla, chairman of the Aditya Birla group and part-owner of Vodafone Idea, indicated in December that owners would not invest further equity into the telecom business.
With operating expenses outstripping revenue, the company has seen its equity base erode over the past two quarters. Its net worth has fallen to merely Rs. 17,623 crore at the end of the December quarter from Rs. 69,540 crore a year earlier.
For the December quarter, Vodafone Idea reported a consolidated loss of Rs. 6,438.8 crore, while income fell 5% and finance costs surged 30%. In the September quarter, it had reported a loss of Rs. 50,922 crore.
Although the Supreme Court’s decision makes an out-of-court settlement difficult, the second person cited earlier said Vodafone Idea may also negotiate with the government to set off part of the pending Rs. 7,000 crore tax refund against part of the AGR dues. This tax refund is based on a 2012 change in the Income Tax Act that made cross-border transactions such as the $11.08 billion Vodafone-Hutchison deal of 2007 taxable. The top court had gone on to rule that the deal was not taxable in India.
Vodafone Idea also expects to receive about Rs. 1,000 crore from the Mumbai unit of the income tax department, and an additional Rs. 6,000 crore from the Delhi unit for multiple assessment years dating back to 2004-05.
“Filing for bankruptcy is definitely an option for Vodafone Idea,” a senior telecom analyst said on condition of anonymity. “But at this juncture, it is hard to say what the management’s next move is. They have said they will try to pay part of the AGR dues, so that implies they intend to continue being in the business.”―Livemint