The department of telecommunications (DoT) has told Vodafone Idea that it needs to roll out 5G services and get investors on board before the government converts the telco’s deferred interest payment amount of Rs 16,130 crore into equity.
The development may put the telecom operator in a tough spot because it has been banking on the government first converting the interest accrued dues into equity, which would give the former a 33% stake in the company, thereby providing comfort to potential investors which would help it in the fundraising exercise.
“We don’t know the reason exactly why this (equity conversion) is not happening. The government has taken some time … so we continue to engage with DoT and expect that this should happen soon,” Akshaya Moondra, CEO, Vodafone Idea, said at the post-earnings analyst call on Friday when asked about the delay in the conversion of dues into equity by the government.
“From our point of view, we had exercised the option to convert in January. Post that we also had a discussion with DoT, and they had sent a letter to us in March, after which we had confirmed the amount of conversion, which was agreed between DoT and us in the month of April. Post that we have not had any communication from DoT in this matter,” Moondra said.
He said the lack of funds is one of the key reasons for the delay in the rollout of 5G services. “We are ready with our plans for 5G rollout. We are engaged with our vendors. Once the funding is in place we will be able to kind of rollout the services and execute quite quickly,” he said.
Vodafone Idea is the only operator which has neither introduced 5G services nor has it given any definite timeline in this regard so far.
Earlier in the week, the company had said there is no bar on the government to convert the debt into equity even if the share price is below the par value of Rs 10.
However, sources in the DoT said the government has done its bit by providing cash flow relief to the telecom operator, so the latter should first do its part by bringing in investors and starting the rollout of 5G services.
“We have already given a huge relief to the telco through telecom sector reform in the form of moratorium on adjusted gross revenue and spectrum-related dues, now we want the company to first share its roadmap on fundraising and 5G rollout plan,” an official said.
Vodafone Idea is looking to raise Rs 25,000 crore, but so far the promoters have been able to infuse only Rs 4,940 crore.
The company’s net loss widened to Rs 7,595.5 crore during the July-September quarter on a sequential basis due to higher finance cost and network operating expenses. Consolidated revenues rose nearly 2% sequentially to Rs 10,615 crore owing to additions in 4G subscribers and increase in average spends by consumer on its network.
The company’s financial performance has impacted its ability to generate the cash flows it needs to settle its liabilities as they fall due, Vodafone Idea’s auditors have flagged in the September quarter earnings report.
At the end of the July-September quarter, Vodafone Idea’s gross debt (excluding lease liabilities and including interest accrued but not due) was at Rs 2.20 trillion, comprising deferred spectrum payment obligations of Rs 1.36 trillion, AGR liabilities of Rs 68,590 crore that are due to the government, and debt from banks and financial institutions of Rs 15,080 crore.
At the 5G spectrum auctions, which concluded towards the end of July, the telecom operator had purchased spectrum worth Rs 18,799 crore. The company has paid Rs 1,679 crore to DoT as first installment for this spectrum.
According to experts, the cash-strapped telecom operator, which is already facing a significant churn of subscribers, may witness more churn if the 5G rollout is delayed.
In the 17 months up to August, Vodafone Idea had lost more than 30 million wireless consumers, according to the data from the Telecom Regulatory Authority of India. As of August-end, the company’s market share was at 22%, compared to Jio and Airtel at 36.5% and 31.6%, respectively.