What was once the jewel in the crown of Vodafone Plc, its Indian joint ventureis on the verge of a shutdown, with the Supreme Court on Friday rejecting any relief on the payment of adjusted gross revenue (AGR). Going by its current financial situation, Vodafone Idea Ltd (VIL) is in no position to pay dues of nearly ₹55,000 crore by the end of Friday, the deadline set by the Department of Telecom (DoT).
Even if it manages to pay some part of the dues, the operator’s balance-sheet will be so leveraged that it will not have enough financial power to survive a battle with Reliance Jio in the market. Shares of VIL tanked 23 per cent on Friday on the BSE as shareholders see the end of the road for the operator.
The company’s net loss rose to ₹6,438.8 crore in the third quarter ended December 31, 2019, an increase from ₹5,004.6 crore posted during the comparable year-ago period. According to industry analysts, there could be some hope for the company if the Centre agrees to lower the overall levies, including the licence fees and spectrum usage charges. Additional capital infusion by the promoters of the telecom company, UK-based Vodafone Plc and its Indian joint venture partner Aditya Birla Group, could also help, but that is unlikely to happen.
Hopes of a relief package
On Wednesday, Vodafone Group had said it was resting its hope on a relief package from the Indian government.
“The outlook for Vodafone Idea remains critical,” Vodafone Group had said in its third-quarter earnings statement. “VIL is actively seeking various forms of relief from the Indian government to ensure that the rate and level of payments it makes to the Indian government is sustainable and it can meet its other commitments as they fall due.”
Limited options
Industry experts said Vodafone Idea could be put under the insolvency process if no financial aid comes over the next week. But the insolvency process may get complicated given a large amount of debt the company has in addition to the payouts related to AGR and licence fee. The other option would be for the company to merge with Bharti Airtel. However, even in that case, the merged entity will have to pay the dues.
In the event Vodafone Idea decides to shut down operations, Airtel will be the biggest gainer, as it is the only operator which can absorb the entire 2G subscriber base from the former. Airtel shares rose over 4 per cent on the BSE on Friday. Reliance Jio could entice the 2G user base to shift to its 4G network through discounts and offers.
But, in the long term, the biggest impact of a VIL shutdown will be on consumers, as tariff levels are expected to go up by 25-30 per cent. More than 10 telecom operators have shut shop over the past 10 years and, if Vodafone Idea exits, there will be just two private players left in the market.