Analysts warn that even govt bailout may not save Vodafone Idea in the long-term

Published: 25 January 2020 - 7:49 a.m.

Industry analysts have warned of a torrid time ahead for India’s second biggest telco, Vodafone Idea, as it struggles to stay afloat under an increasingly heavy debt pile.

Vodafone Idea missed Friday’s deadline to begin paying back billions of dollars of adjusted gross revenue (AGR) dues and analysts from Deutsche Bank have warned that tough times lay ahead for the 300 million subscriber company.

In a note to the press, quoted by the Economic Times of India, Deutsche Bank said that even a substantial relief package from the government may not be enough to save Vodafone Idea from bankruptcy.

“The government will find it too expensive to provide a large enough fix needed to prop up VIL [Vodafone Idea] for anything other than the medium-term,” Deutsche Bank said in the note.

Vodafone Idea’s biggest shareholder, Vodafone Group has publicly asked the Indian government to come up with a substantial relief package to stop the ailing telco from going under.

At an industry event in November last year, Vodafone Group’s CEO, Nick Read, clearly stated what the company required in order to continue trading:

"Firstly, a two year moratorium on spectrum payments. All we are really saying is that we want to pay for the spectrum over the full life of the licence (20 years). Currently we pay over an 18-year term. We are asking for them to give us a two-year moratorium to allow us to harmonise the payments. That will give us breathing space in terms of cash coming out of the business.

"Secondly, lower the licence fees and taxes being born by the sector. These have just increased and increased and increased and we have got to an unsustainable position.

"The third thing, regarding the AGR case, we are asking for the waiving of fees and penalties and to be able to spread the principle over a ten year period. By the way, it’s worth noting to give you an order of the magnitude involved, when the ruling came out, [Indian telcos] were ordered to pay $13 billion. Of that amount, $4 billion was Vodafone Idea. Of that $4 billion, only $900 million was the principle, the rest is interest and penalties. That's a huge amount. What we are saying to the government is that we have over 300 million customers that rely on our service,” he said.

Read categorically ruled out the possibility of Vodafone Group putting any more money into the JV.

“We have invested substantially in this country but we have reached a point where we cannot put any new equity from Vodafone Group into the country. We now need to see the government come forward with a relief package to provide confidence that they want a vibrant and competitive environment,” he said.

So far, other than granting the two year moratorium on spectrum payments, the Indian government has rebuffed Read’s requests.

Analysts at Deutsche Bank claimed that the JV’s minority shareholder, the Aditya Birla Group, would not be looking to inject any more cash at this stage either.

“The Aditya Birla Group may even consider getting Vodafone Idea to go into bankruptcy on the chance that it may be able to repurchase the rump of the business,” analysts said.

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