Kumar Mangalam Birla, the chairman of Vodafone Idea (VIL), a financially challenged business, has offered to sell his interest to any public sector, government, or domestic financial organization that can keep the company afloat. Birla made the offer to the government in a letter dated June 7 that included a list of locations where the Centre’s assistance was needed by the end of July. He said that without the assistance, the company’s operations would collapse.
The letter, written to Cabinet Secretary Rajiv Gauba, asks for the government’s help with AGR (adjusted gross revenue) liability, a sufficient freeze on spectrum payments, and, most significantly, a floor pricing system above the cost of services. According to analysts, Birla’s letter was sent on June 7, since then, certain events have occurred that have left the government unable to intervene. Like, the company’s appeal for rectification of arithmetical mistakes in computing VIL’s AGR dues was denied by the Supreme Court.
VIL’s AGR dues are valued at Rs 58,254 crore by the Department of Telecommunications (DoT), compared to Rs 21,533 crore by the business. However, because the Supreme Court dismissed the corporation’s appeal, the company will have to rely on the government’s calculations. The business has so far paid Rs 7,854 crore. It had already written to the government, requesting that the deferred spectrum installment of Rs 8,200 crore, which was due in April 2022, be postponed for a year.
Furthermore, the issue of tariff floor prices is the responsibility of the Telecom Regulatory Authority of India, not the government. According to FE, the regulator is hesitant to set a floor because it believes it may result in cartelization complaints from the Competition Commission of India. The government’s sole choice now is to grant a delay in the payment of delayed spectrum payments as well as a decrease the license price and spectrum use charges. Any favorable choices would take a long time due to inter-ministerial issues.
Vodafone Idea is owned by the Aditya Birla Group, that owns 27.66% stake of the company. Vodafone Plc is the other partner in the company, with a 44% interest. The company’s current market capitalization is about Rs 24,000 crore. Analysts believe Birla’s plan to sell his interest to the government has some merit because the firm is heavily financed by the government. For example, government dues in the form of postponed spectrum payment (Rs 96,300 crore) and AGR dues (Rs 61,000 crore) total about Rs 1.57 lakh crore of Vodafone Idea’s net debt of Rs 1.8 lakh crore.
In its analysis, Deutsche Bank said that the government’s sole option for keeping VIL afloat is to convert its debt to equity, preferably through a merger with BSNL, and then give it a clear commercial mission based on profitability objectives and incentives. VIL owners would be significantly diluted if this happened, as government debt is nearly six times the current market valuation, according to the brokerage company.