Vodafone’s India Venture Boosted After Government Plea For Payment Extension

Vodafone’s Indian joint venture was thrown a potential lifeline on Monday after the government proposed that the telecoms groups should be given 20 years to pay about $13bn in retrospective levies and penalties.

The application submitted to the Supreme Court comes after it ruled in October that telecoms companies must pay the historic fees within months, in a judgment that threatened the survival of Vodafone Idea and hit foreign investor confidence.

It is unclear if the Supreme Court will accept the application when it next meets. At a hearing in February, the court admonished the government and mobile carriers for “violating” its orders and failing to follow its directions to deposit the fees, threatening to initiate contempt proceedings.

“We have to wait to see what the Supreme Court says, it’s a big unknown,” said Abhimanyu Sofat, head of research at financial services company IIFL in Mumbai. “Going forward there are still question marks — even if they [Vodafone Idea] stick around, they won’t have enough cash flow to invest in 5G”.

Shares in Vodafone Idea were up 1.8 per cent after Monday trading at Rs5.70 after it announced it had paid another instalment of its dues to the department of telecommunications and following news of the government’s application.

Vodafone Idea, a partnership between Kumar Mangalam Birla’s Aditya Birla Group and the UK-based operator, owes a total of Rs547.54bn ($7.4bn) to the government, while Bharti Airtel owes Rs259.76bn ($3.5bn), according to court documents.

Reliance Jio, the upstart network founded by Asia’s richest man Mukesh Ambani, has already cleared its dues of Rs1.95bn ($2.6m) — a sum that is significantly smaller than its competitors because it has only been in operation since 2016.

Vodafone Idea and Bharti Airtel both declined to comment on the government’s application.

Vodafone Idea has previously warned it would have to “shut shop” if New Delhi did not intervene on the charges.

In the application New Delhi proposed that telecoms licensees affected by the judgment should have the option of paying the remaining amount of dues in annual instalments over 20 years, using an discount rate of 8 per cent.

“Considering the huge amount which is payable by the telecom service providers, there would be certain inevitable consequences which may not be in anyone’s’ interest,” said the government in its application.

“The applicant is conscious of the fact that any immediate adverse impact on the functioning of the telecom service providers would not only have an adverse impact on the overall economy of the nation but would also seriously harm the interest of the consumers across the country.”

Analysts have warned that a Vodafone Idea bankruptcy would in effect transform India’s telecoms market into a duopoly between Jio and Bharti Airtel. Its collapse would also hit the stressed banking sector and government tax revenue at a time of weak economic growth in the country.

―Financial Times