Tag: Vodafone group

Banks call on government to ease pressure on India’s Vodafone Idea, BFSI News, ET BFSI

Banking & Finance

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By Nupur Anand and Aftab Ahmed

MUMBAI: Banks led by State Bank of India (SBI) have called on the Indian government to give debt-laden Vodafone Idea more time to clear its tax dues and spectrum fees, two bankers and a government official familiar with the matter said.

An Indian court last year ordered the mobile carrier, a joint venture between the Indian unit of Britain’s Vodafone Group and Aditya Birla Group’s Idea Cellular, to pay just over $8 billion to the government to settle long-standing dues. Vodafone has a stake of about 44% in the company and Aditya Birla owns nearly 27%.

In June, Vodafone Idea’s then non-executive chairman Kumar Mangalam Birla warned that without a government reprieve the Indian mobile carrier’s “financial situation will drive its operations to an irretrievable point of collapse”.

Vodafone Idea’s gross debt as of June 30 was 1.9 trillion rupees, comprising of deferred spectrum payment obligations of 1.06 trillion rupees and an adjusted gross revenue liability of 621.8 billion rupees, its latest stock exchange filing in June showed.

The adjusted gross revenue is the usage and licensing fee that telecom operators are charged by the Indian government.

The mobile operator also reported that it owes 234 billion Indian rupees ($3.18 billion) to financial institutions.

Senior SBI officials and representatives of the Indian Banks’ Association (IBA) met finance and telecom department officials this month and proposed an immediate breather on the repayment of spectrum dues, the two bankers and the government official, who requested anonymity, told Reuters.

“We’ve had these discussions with the banks but the issue is the finance ministry needs to be comfortable with the measures,” the government official said.

SBI, IBA, and the finance and telecom departments did not respond to Reuters requests seeking comment.

The government is also evaluating whether to take a small stake in financially struggling Vodafone Idea, in order to allay investor concerns regarding the future of the telco.

The company is facing a repayment of 5-10 billion rupees of non-convertible debentures around January, one of the bankers said.

Vodafone Idea declined to comment. Vodafone Group did not immediately reply to an email seeking comment. An Aditya Birla Group spokesman declined to comment.

Vodafone Idea had cash and cash equivalents of 9.2 billion rupees at the end of June, a transcript of a company conference call published on its website said.

“All eyes are on New Delhi right now as banks are getting increasingly nervous,” another banker with exposure to Vodafone Idea said.

The bankers have also proposed providing some relief to Vodafone by restructuring its dues, one government official and two bankers said.

Birla stepped down as chairman early last month after appealing for the government bailout.

The government has been considering a broader package to help a telecom industry disrupted by the 2016 entry of Mukesh Ambani-controlled Reliance Jio, which shook up the market with its free voice and cut-price data plans.



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KM Birla steps down as non-exec chairman of Voda Idea, BFSI News, ET BFSI

Banking & Finance

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Aditya Birla Group (ABG) chairman Kumar Mangalam Birla has resigned as the non-executive chairman and director of Vodafone Idea (Vi), intensifying the gloom over the cash-strapped telco which has been desperately trying to raise funds and seek government help to survive.

Birla is being replaced by Himanshu Kapania, currently a non-executive director and a former managing director of the erstwhile Idea Cellular before its merger with Vodafone India.

“The Board of Directors of Vodafone Idea Limited, at its meeting held today, have accepted the request of Mr. Kumar Mangalam Birla to step down as Non-Executive Director and Non-Executive Chairman of the Board with effect from close of business hours on 4th August, 2021,” the company said in a notice to stock exchanges on Wednesday.

UK’s Vodafone Group, the co-parent of Vi with a 44.39% stake, declined to comment.

Birla’s announcement – which came after market hours – comes less than two months after he wrote to the government, offering to hand over the group’s 27.66 % stake in Vi to any public sector or domestic financial entity who could keep the company afloat. He had also asserted that without immediate government support, the telco would be driven to an irretrievable point of collapse.

The Vodafone Group didn’t comment on Birla’s letter. But its CEO Nick Read on July 23 – over a month and a half after Birla’s June 7 letter – reiterated UK major’s stance that it won’t infuse any more equity in its Indian JV.

The government hasn’t responded to Birla’s letter. Officials though say that the Centre is preparing a relief package for the telecom sector, which would also benefit Vi. The package could include allowing surrender of spectrum, reduction of bank guarantees, phasing out or reducing levies such as licence fees and spectrum usage charges and prospectively redefine adjusted gross revenue (AGR) to exclude non-telecom items.

Vi’s stock crashed 20% to its 52-week low on Wednesday to Rs 5.94 before ending 18.5% down at Rs 6.03 as investors dumped the company, fearing it is headed for a default and bankruptcy, said market experts. The shares lost Rs 3,936.75 crore in value, a day after losing Rs2,443 crore when the scrip ended 10.3% lower. Contents of the letter were made public on Monday.

Market watchers said the planned relief package won’t address the immediate cash needs of the telco, which is staring at a potential $3.1 billion (Rs 23,500 crore) shortfall in cash flows in FY23, as per Kotak Securities. Vi’s cash balance at March end was Rs 350 crore and its efforts at raising Rs25,000 crore for the last 10 months hasn’t been successful so far.

Birla had taken over as non-executive chairman of Vodafone Idea in August 2018 upon the closure of a $23-billion merger between Idea Cellular and Vodafone India, the telecom unit of Vodafone Group. The merged entity became the country’s largest telco by revenue market share and subscriber share.

But since then, as the two companies worked to integrate the two large telcos, Vodafone Idea rapidly lost both revenue and subscriber market share to rivals Reliance Jio and Bharti Airtel.

Its debt ballooned to Rs1.8 lakh crore in the January-March quarter as it borrowed to buy spectrum and invest in its network, at a time revenue was falling sharply, leading to dwindling cash flows and heavy losses. Vi has never reported a quarterly profit since the merger. Its net loss in the January-March quarter was Rs 6,985.1 crore.

The telco was pushed to the brink after the Supreme Court ruled in September 2019 to widen the definition of AGR to include non-telecom items and left Vi with a statutory bill of over Rs58,000 crore. It has paid Rs7854 crore so far, and all its attempts to reduce the AGR bill by legal means has come to nought.

In his letter, Birla said that over the last year, the telco has made all efforts to improve the operational efficiency of the company through prudent capital spending, manpower restructuring, and other cost cutting steps.

“Despite all that, the financial condition (particularly the liquidity position) of the company has sharply deteriorated,” he said.

Birla had also sought positive actions on long standing requests such as clarity on AGR liability, adequate moratorium on spectrum payments, and a floor price regime for investors to have confidence in the sector to invest in Vi. The letter predated last month’s Supreme Court order which dismissed the plea of Vodafone Idea and other telcos to permit rectification of ‘arithmetical errors’ in the computation of AGR dues.

He added that without backing from the government on the three major issues by July 2021, VIL’s financial situation will drive its operations to an “irretrievable point of collapse”.



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Voda Idea lenders fret over ‘too big to fail’ telco giant, BFSI News, ET BFSI

Banking & Finance

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Mumbai: A day after Kumar Mangalam Birla’s letter warning that Vodafone Idea (VIL) may reach an “irretrievable point of collapse” became public, banks are worried about the fate of the telecom major which, they say, is “too big to fail”.

Lenders, both Indian and global, have an exposure of Rs 1.8 lakh crore. A large part of this is in the form of guarantees. Some private lenders with a funded exposure have already started making provisions. However, the bulk of the exposure is to public sector banks.

If VIL fails to repay its dues to the government and these guarantees are invoked, it would immediately turn into debt and would soon be classified as a non-performing asset. The hit on public sector banks will not be as large as their exposure because in recent years, lenders have been demanding a substantially higher cash margin from Vodafone for their guarantees. IDBI Bank is understood to have up to 40% margins for the guarantees it has extended. But even then it will be large enough to wipe out profits for many.

For banks, recovery of debt is contingent on VIL remaining operational and retaining customers. While the company continues to have close to a fourth of the Indian market, its situation could change overnight if there is a default. According to bankers, the insolvency process can work only when there are buyers. In the case of VIL, the Rs 53,000-crore AGR (adjusted gross revenue) dues to the Centre are a deterrent. This is despite Birla being willing to write down his entire equity.

The government dues cannot be avoided as the Centre cannot make an exception for one company. Even in insolvency cases, the telecom department has claimed its dues to be that of a financial creditor although there have been attempts to mark them as operational creditors. The uncertainty over telecom department’s claims, which is already being experienced by lenders in the Reliance Communication insolvency case, would makes telecom resolutions a challenge. Lenders do not want to risk insolvency as this would result in the exit of customers which was the case with RCom.

Lenders say besides the company’s debt obligations being equal to 1.5% of the banking sector’s credit, VIL is a large telecom infrastructure provider. Several business applications run on their networks and the company is one of the largest providers of “internet of things” service. A bank executive said insolvency would be a worst-case scenario as there is a risk of customers migrating.



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