Kumar Mangalam Birla has met telecom minister Ashwini Vaishnaw and urged the Centre to make good on its promise to convert Vodafone Idea’s dues into equity. Birla is the chairman of the Aditya Birla group, a promoter of Vodafone Idea Limited (Vi) along with the UK’s Vodafone.
The promise was made in September 2021 but the government has insisted that it won’t convert the company’s debt into equity until the promoters pump in fresh funds which have led to this standoff.
The Vodafone Idea equity has been trading below par — another reason why the government has been dragging its feet on the conversion at a loss. The stock is quoting at Rs 7.93 on the BSE on Thursday against a face value of Rs 10.
“Vodafone (Idea) has many requirements. It has a particular requirement of capital. How much capital, who will infuse? All those things are under discussion at this point of time,” Vaishnaw said.
Vi has offered a stake to the government at a par value of Rs 10 per share and the government is waiting for the company’s shares to stabilise at Rs 10 apiece.
“The responsibility of capital has to come from various sources. The company just doesn’t require conversion. It requires capital. All those things are a complex issue,” Vaishnaw said.
Birla met Vaishnaw on Tuesday in a bid to urge the government to expedite the conversion of Vi’s licence fee and spectrum dues to government equity.
Sources said Birla did not make any commitment on further fund infusion during the meeting.
Vodafone Idea, reeling under a debt burden of over Rs 2 lakh crore, has opted to convert about Rs 16,000 crore of interest liability payable to the government into equity, which will amount to around a 33 per cent stake in the company, with the promoters’ holding coming down to 50 per cent from 74.99 per cent.
However, the process is yet to be completed even after more than a year.
When the revival package was framed for the legacy telecom players in 2021, Vi’s promoters had promised to bring in Rs 10,000 crore, which they have failed to do. The promoters have been looking for a strategic partner but haven’t been successful.
Reports suggest that if Vodafone Idea isn’t able to bring in fresh funds by February, it will be difficult for the telco to survive.
Analysts who track Vi said the government’s equity participation could lead to the company making some progress in its September 2020’s announcement of raising Rs 20,000 crore through a mix of debt and equity. Even the State Bank of India has sought clarity on the government’s stake before committing fresh funds to the beleaguered telco.
The promoters had committed to bring Rs 10,000 crore, but have only infused Rs 4,900 crore, used to clear the dues of Indus Towers.
Observers said if the capital infusion does not come, the survival of the telco would be difficult since it has been posting losses and consistently losing subscribers to rivals Jio and Bharti Airtel.
“Despite the moratorium on government dues and subsequent tariff hikes, Vi’s cashflows are inadequate to either raise network investments meaningfully or to repay external creditors, in our view,’’ brokerage Kotak Institutional Equities said.
It estimates that Vi has to repay Rs 8,800 crore debt between October 2022 and September 2023, and the company would face a cash shortfall of nearly Rs 5,900 crore. Further, with a fund-raise proving elusive, Vi would require a strong Rs 32 (or 25 per cent) uptick in its average revenue per user (ARPU) in the near term.
“Further, we note that Vi also has nearly Rs 10,000 crore in outstanding dues to various vendors and would require a much sharper tariff hike to avoid bankruptcy.”
“With the debt repayments to the government commencing in 2025-26, Vi would require ARPU to increase to nearly Rs 400 to meet the cash shortfall after the moratorium,” the brokerage said.
During the second quarter ended September 30, 2022, losses at Vi widened to Rs 7,595.5 crore against Rs 7,296.7 crore in the preceding three months. Gross revenues of the company stood at Rs 10,614.6 crore against Rs 10,410.1 crore on a sequential basis.
