Economy

Govt control of Vodafone Idea, a wrong call?

Ayushi Kar | | | Updated on: Jan 12, 2022

Worrisome signal The government’s history of managing public sector units doesn’t bode well for the third-largest telco AFP | Photo Credit: PUNIT PARANJPE

A future where 90 per cent of the market belongs to Bharti Airtel and Jio is a possibility

Vodafone Idea’s move to offer 35.8 per cent stake to the Government in lieu of its interest payments for AGR and spectrum dues does not bode well for the company, according to experts. The move by the third-largest telco is an indication that the funds that can be raised by external investors and infusion of promoter equity will still not be enough for massive investments ahead for Voda Idea — leaving it with no choice but to resort to the government-proposed option to convert debt to equity.

Experts believe that given the government’s history of managing public sector units, chances that the telco will thrive in this type of management structure are pretty poor.

After the announcement of the September telecom relief package Voda Idea has been trying to raise funds to invest in 4G infrastructure and the 5G race after narrowly averting insolvency. While promoters British company Vodafone Plc and Aditya Birla Group have refused to infuse any fresh equity, talks of potential fundraising from new investors have not made headway.

Whether Voda Idea’s decision to convert debt to equity means promoter infusion is unlikely remains unknown but does indicate that the current promoters want to bring down their skin in the game.

Sanjay Kapoor, former CEO of Bharti Airtel Limited, said, “As far as investors are concerned, this is telling the marketplace that Vodafine Idea is not able to raise the requisite funds, thus the government’s help will be required. And this is a backfoot signal. From a fundraising perspective, it weakens their position; it also tells us that they believe that fundraising was not going to be enough.”

“Availing the debt to equity conversion option so early into the 4-year moratorium appears to be a signal that promoters did not have any intention of putting up substantial equity, at the back of which fundraising also becomes difficult, without promoter commitment. The company then has no option but to avail this option,” said another expert.

While this move gives Voda Idea liquidity to participate in further investments to bolster its infrastructure, four years out, Vodafone Idea’s largest shareholder is going to be the Government of India, with nearly 36 per cent stake.

‘Best possible option’

“The GOI has been explicit about the fact that they should not be in the business of running businesses. But one needs to take the dire circumstances into account, wherein this industry, which is the virtual backbone of the whole economy, was in danger of becoming a duopoly from an oligopoly, in light of which this exception has been made,” said Kapoor.

For Hemant Joshi, a telecom analyst, “The joint tag with the GOI could open new possibilities for the company if properly managed. In light of the situation, this is the best possible option, infusing much-needed liquidity into the company. One must remember that unlike government PSUs, usually 100 per cent owned from the get-go, that will not be the case here, where management continues to be run by promoters, the board is appointed by shareholders, not just government.”

“It is unlikely the business will sustain unless the Government comes out with a definitive plan of reviving the business of Vodafone Idea in consultation with the existing shareholders” said Tony Verghese, Partner, J Sagar Associates (JSA).

For Kapoor, the plight of BSNL and MTNL does not leave too much hope for what is going to be a government-owned company (majority) in the future, thus leading to the depletion of its assets in value, etc.

“A future where 90 per cent of the market belongs to Bharti Airtel and Jio is a possibility,” said an expert.

Published on January 11, 2022
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