India’s third largest telecom operator Vodafone Idea Ltd has said it is in discussions with Indus Towers Ltd to clear its pending dues with softer payment terms. The statement comes after Indus Towers had reportedly sent a letter to the telecom operator asking to clear its pending dues or lose the access to towers.
“The Company has been in discussion with Indus for softer payment terms, which are continuing, but have not been concluded as yet,” Vodafone Idea said in an exchange filing. Vodafone Idea is the second-largest customer of Indus Towers after Bharti Airtel. The company leases several tower and rooftop locations from the tower company to run its network.
Losing access of towers may affect the telecom services by Vodafone Idea and further derail the company’s plans to launch fifth generation wireless services in the country. The beleaguered telecom operator has been struggling to raise external funding for some time now. In 2020, the company’s board had approved a plan to raise Rs 25,000 crores but has only been able to raise close to Rs 5,000 crore so far that too from promoters.
Of the total Rs 1.98 trillion gross debt, the company owes about Rs 7,000 crore to Indus Towers. Earlier this year, it had paid about Rs 3,375 crore to the towers company after its promoter sold a 7.1% stake in Indus Towers.
Lately, Indus Towers has been facing some cashflow-related stress largely due to discounts for tower rental renewals which happened during the June quarter. The tower company even reported a sharp decline in its average tower rental to Rs 41,879 per installation per month, from Rs 47,148.
Going forward, the company’s financial performance is dependent heavily on Vodafone Idea’s repayment of dues. As per earlier discussions, the telecom operator had committed to pay part of the amount to be billed till December 31, and 100% of these amounts billed thereafter.
In a post-earnings call with analysts in August, Indus Towers Chief Financial Officer Vikas Poddar had said that the payment plan that the company received from Vodafone Idea indicates that they will not be able to pay full payment of its monthly dues till December.
Poddar then also informed that Indus Towers was considering a proposal by Vodafone Idea to clear the remaining dues as on December 31, between January 2023 and July 2023. As of June end, Indus Towers’ total trade receivables were at Rs 6,250 crore. During the June quarter, the company had also made a provision of Rs 1,230 crore rupees as doubtful debts of Vodafone Idea.
Owing to a weak financial position and continuous loss of market share, lenders are also seen unwilling to participate in the company’s fundraise process. The reason for the lenders to be at bay could be a delay in government’s equity conversion in the company for its interest payment dues.
The telecom operator in January had opted to convert the interest liability worth Rs 16,130 crore on deferred interest payment for regulatory dues, into government equity. The option to convert interest liability into government equity was part of the telecom sector reforms announced by the government in September 2020.
Upon conversion of interest liability into equity, the government will be the single largest shareholder in Vodafone Idea with a 33% stake. Industry sources also suggest that the lenders also want more involvement of promoters in the company’s fundraise plan, and therefore unwilling to lend to the company.