Is Vodafone going bankrupt?
Business
Vodafone is in deep trouble
Vodafone-Idea (VI) owes a total debt of INR 1.8 lakh crores - including AGR dues, deferred spectrum charges, and bank loans. The company hasn't reported a single quarter of profits since the merger in 2018, with last year posting a loss of INR 73,000 crores - the highest ever by any Indian firm. VI has a negative net worth of INR 44,000 crore and has lost 50 million subscribers since Jan 2020.
While KM Birla is willing to offer his entire 28% stake in the company to the government, there still isn’t any resolution yet. With the current situation of the company, Vodafone Plc CEO Nick Reeds is not willing to invest any additional funds in India. All signs are pointing towards a possible bankruptcy.
Timeline
AGR dues keep piling
Jio stirred the telecom industry into consolidation with R-Com and Aircel shutting shop and the Vodafone-Idea merger. Looking at the above numbers, however, the sustainability of VI seems bleak unless the Government finds a way out to fix the issue structurally.
The impact of bankruptcy will be widespread
NPA issue
Dept. of Telecom will have to write off the INR 50,000 crore in AGR dues that Vodafone will not be able to pay. These will essentially become Non-Profitable Assets for the government. Additionally, the banks will also bear the brunt of having to write off close to INR 30,000 crore which will be particularly painful for banks like IDFC First and Yes Bank for whom the exposures are more than 2% of their total loan book.
Changed structural dynamics
The telecom sector is slowly moving towards an oligopoly, and with VI throwing in the towel, that is exactly what it’ll become.
This means that not only will the current 14,000 employees at VI lose their jobs, the massive 25 million subscriber base of VI will also have to move to either Airtel or Jio, who are already overburdened and have limited capacity. This might lead to an overall price hike and/or significant quality degradation.
Future of FDI
Vodafone Plc. is a global giant, if it exits business in India, it will have a direct bearing on foreign companies pondering over the idea to invest in India. If they do not see the Indian market as conducive for foreign investment, the country’s image and ratings will take a direct hit.
So are there any possible solutions?
Floor pricing: The fixed base price could help salvage some revenue for companies and kill the monopoly.
Financial restructuring: Lenders should convert the debt to equity to prevent possible bankruptcy filing. However, this move could have a negative effect on its already volatile stock price but still seems like a better option than having to eventually write off those dues.
Jio and R-Com: While both are separate entities, since 2016, Jio has been using the R-Com spectrum. Therefore, it is only fair that they are made to pay up the AGR dues of R-Com (INR 25,000 crores) for the said period.
Interest waiver: The government can offer Vodafone Idea and the entities which have shut shop a scheme to pay the principal dues with the penalties and interest, etc. waived off.
Bottom line
The government's tax revenues are at its lowest in a decade, but to balance its books by not compromising on the INR 1.47 lakh crore will be a penny-wise but pound-foolish move. One hopes that the Centre sees the big picture and intervenes for the greater benefit of the country in the long run, particularly at a time when the FDI trends have been promising.
Like what you read? Share this article with your friends and follow us on:
Instagram | Medium | LinkedIn