Facing a $4 billion demand from India to cover past dues, Vodafone Idea Ltd. took a one-time charge that led to a net loss of 509 billion rupees ($7.1 billion) in the three months through September.
After posting the worst quarterly loss in India’s corporate history, Vodafone Group Plc’s besieged local venture is appealing for urgent relief from the government to help avert a collapse. Facing a $4 billion demand from India to cover past dues, Vodafone Idea Ltd. took a one-time charge that led to a net loss of 509 billion rupees ($7.1 billion) in the three months through September. The nation’s second-largest phone operator, formed by the merger of the British firm’s local unit with billionaire Kumar Mangalam Birla’s Idea Cellular Ltd., hasn’t seen any profit since the deal was announced in 2017.
“The company’s ability to continue as going concern is dependent on obtaining the reliefs from the government,” Vodafone Idea said in a statement late Thursday. It is “in active discussions with the government seeking financial relief,” it said. Saddled with $14 billion of net debt, Vodafone Idea is fighting for survival after India’s top court last month ordered it to pay additional fees the government said were due from prior years. Vodafone Chief Executive Officer Nick Read told reporters this week in London that the situation was “critical” and unless India eases off on its demands, the venture may be headed for liquidation.
Rival Bharti Airtel Ltd. also posted a record net loss on Thursday after the close of market hours, highlighting the extreme financial stress of the Indian telecom operators as they battle high levels of debt, a bruising price war unleashed by billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd. and more recently, the adverse court verdict. Airtel’s shares, which have gained 28% this year, rose 1.3% to 367.05 rupees at 9:21 a.m. in Mumbai, while its 5.65% perpetual notes advanced. The company’s “mobile performance was robust,” and grew from the preceding quarter, Saurabh Handa, an analyst with Citigroup Inc. in Mumbai wrote in a report. Vodafone Idea dropped 8.5% to 2.7 rupees.
In its Oct. 24 verdict, the Supreme Court of India ruled in favor of the government’s method of calculating operators’ revenue, a decision that means carriers must pay about $13 billion combined — mostly license and spectrum fees built up over years. Tycoon Sunil Mittal’s Bharti Airtel owes $3 billion, while Reliance Jio needs to pay 130 million rupees, the least, since it has only been in business since 2016. The finance ministry won’t back down from collecting the amount, which needs to be paid within three months as per the court order, an official with knowledge of the matter said this month.
The demand has come as a severe blow to Vodafone Idea at a time when it is facing competitive pressure from Jio. The upstart controlled by Asia’s richest man barreled into India’s wireless market three years ago and vaulted to the top with free calls and cheap data, acquiring about 380 million users. Jio’s entry drove some incumbents to bankruptcy, while some like Vodafone and Idea merged. But the pressure on earnings continued. Bharti Airtel, whose parent counts Singapore Telecommunications Ltd. as an investor, reported the highest ever quarterly loss of 230.4 billion rupees for three months ended September. Losses at Bharti Airtel forced SingTel to also make such a hefty provision that it slipped into a quarterly loss for the first time. Vodafone Idea took a one-time charge of 256.8 billion rupees.
Airtel continues to engage with the government, Gopal Vittal, company’s chief executive officer for India and South Asia operations said in a statement, referring to India’s top court verdict on dues. “We are hopeful that the government will take a considerate view in this matter given the fragile state of the industry,” said Vittal. To ease the pressure on its Indian venture’s finances, Newbury, England-based Vodafone, which owns about 45% of the venture, said this week that it wants a two-year delay on spectrum payments and lower license fees and taxes.
It’s also called for the spectrum payment demanded by the court to be spread over 10 years and is asking for waiver and penalties. “If you don’t get the remedies being suggested, the situation is critical,” Vodafone CEO Read said on Nov. 12. “If you’re not a going concern, you’re moving into a liquidation scenario — can’t get any clearer than that.”
Opt For Insolvency
Earlier, Read said Vodafone would refrain from plowing more money into India. The other partner, Birla, won’t inject fresh equity and will opt for insolvency if the government doesn’t provide relief, the Economic Times reported Thursday, citing people it didn’t identify. At the same time, Reliance Jio Infocomm Ltd., the largest carrier, has insisted its two smaller rivals can and should pay up on time.
A government panel is considering deferring payments due by March 2021 and March 2022, an official said last month. It will also consider cutting spectrum fees and other charges, said another official, who asked not to be identified citing rules. India had a dozen independent carriers two years ago, and just three non-state operators are left standing today. The only clear winner has been Jio, which is backed by the deep pockets of Ambani’s sprawling energy-to-petrochemicals empire.