Communications minister Ashwini Vaishnaw’s statement last week that Vodafone Idea needs capital infusion, and equity conversion by the government is not its only requirement, perhaps is an indicator of crossed wires between the government and the company in the aftermath of the revival package announced in September 2021.
The government’s idea was to provide cash flow relief to telcos by deferring by four years the payment of adjusted gross revenue and spectrum dues with net present value protected. Operators were given the option to pay the accrued interest on the deferred amount by way of equity to the government. The amount worked out to Rs 16,130 crore in Vodafone Idea’s case. Upon conversion of equity, the government would become the single largest shareholder in the company with a stake of around 33%, while the promoters’ holding would come down from 74.99% to 50%. However, the government had made it clear that it won’t be part of management or go for any board representation.
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While Bharti Airtel had also opted to defer the dues, Vodafone Idea was the only company to offer equity to the government in lieu of interest payment.
It’s here that the signals became mixed and the stalemate began.
The government, which wanted to avoid a duopoly resulting from the sinking of Vodafone Idea, apart from protecting banks and its own dues, felt the company would be able to raise funds on the back of the relief it had provided. Vodafone Idea, on the other hand, thought the government would first convert the dues into equity, which would provide comfort to investors willing to put money in the company.
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As the telco pressed the government for equity conversion, officials felt it was being presented as a pre-condition, something which was not mentioned in the clauses of the revival package. Further, government officials said the promoters of Vodafone Idea had committed to put Rs 10,000 crore in the company. Till date, they have put in only Rs 4,900 crore. The company said it needed to raise Rs 25,000 crore to tide over the crisis, and the balance Rs 20,000 crore would come from investors once the government converted the dues into equity.
According to official sources, worries started to emerge in government circles that if the equity conversion was completed and the promoters failed to either put in money or bring in new investors, the government would be saddled with running the company. This view was strengthened because the telecom package also stipulated that if at the end of the four-year period, companies failed to pay the principal amount, the government would have the discretion of converting even that amount into equity. The feeling in government circles was that this discretion may become a compulsion in the case of Vodafone Idea.
It was also felt that the government was putting in a massive Rs 1.64 trillion to revive the state-owned BSNL. If that works out, a duopoly would be avoided.
It is at this point that government officials started pressing the company to show them the money — from where capital would come and how much. “Vodafone Idea has many requirements. It has a particular requirement of capital. So, how much capital is needed, who will infuse, all these things are under discussion,” Vaishnaw said last week in Bhubaneswar.
As the stalemate between the two sides continues, Vodafone Idea’s net loss has widened to Rs 7,595.5 crore during the July-September quarter. According to its auditors, the financial performance has impacted its ability to generate the cash flows it needs to settle its liabilities as they fall due.
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.
Due to the fund crunch, the company has not been able to launch 5G services like its peers, Reliance Jio and Bharti Airtel.
According to the company, Rs 9,600 crore of debt is payable by September 2023, while its gross cash balance as of September 2022 is Rs 200 crore. Analysts have estimated that the company will have a cash shortfall of Rs 6,400 crore by September 2023, assuming that all debt is repayable.
As of October-end, the company’s market share was 21.5%, while that of Jio and Bharti Airtel was at 36.9% and 31.9%, respectively. In the 19 months till October, the telecom operator has lost about 38.1 million mobile subscribers. Its total mobile subscribers as of October end was 245.62 million.