Vodafone Idea’s payment default puts Indus Towers in financial straits

Vodafone Idea’s failure to meet its contractual payments has significantly affected Indus Towers, causing serious financial and operational problems for the towers company. This non-payment has severely impacted cash flow, working capital, and overall financial performance, MD & CEO Prachur Sah, wrote in a letter to the Telecom Regulatory Authority of India (TRAI).

The letter, accessed by CNBC-TV18, also highlighted that due to Vodafone Idea’s inability to make payments, Indus Towers couldn’t declare dividends to its shareholders for the first time since its listing. As of September 30, 2023, Vodafone Idea owes Rs 7,864.5 crore to Indus Towers.

The letter emphasised that if Vodafone Idea continues to breach its payment obligations, Indus Towers would have the right to pursue lawful remedies and limit its services to the telecom company to mitigate losses.

Vodafone Idea’s broken commitments and defaults
Indus Towers said that they have been pursuing payments since early 2022 and even made a one-time settlement agreement with Vodafone Idea in February 2022 as a gesture of goodwill. However, despite this, Vodafone Idea has persistently defaulted on payments, breaching agreements.

In a letter dated September 29, 2022, Vodafone Idea committed to making timely and complete payments towards the overdue amount, including interest, from January to July 2023, with a minimum committed amount of Rs 500 crore each month.

“However, Indus has not received any amounts persuant to this commitment much less than the minimum committed amount of Rs 500 crore for the months of January to July 2023,” the letter stated.

Discrepancy in representation to TRAI
The tower company has also denied the representations made by Vodafone Idea to the TRAI that the issues are limited to delay in payment of Rs 900 crore, whereas the overdue amount has substantially increased between January 2022 to September 2023.

Vodafone Idea recently made the payment of Rs 1,701 crore, including interest, to the Department of Telecom (DoT) with regard to the 2022 spectrum auction instalment. Last month, the company said it proposed to pay the instalment of nearly Rs 1,680 crore to the DoT by availing a grace period of 30 days with interest. The company has managed to do so within a 30-day time period.

Vodafone Idea’s management during its earnings call also said that the fundraising talks for the company have gathered pace in the recent past. However, no clarity has emerged on that front yet.

PD Vaghela, the outgoing Chairman of the Telecom Regulatory Authority Of India (TRAI), in an exclusive interaction with CNBC-TV18 said that he is concerned about the Vodafone Idea not being able to roll out 5G services.

Vodafone Idea has not shared a timeline for the launch yet. CNBCTV18