Voda Idea's Viability Remains Clouded Despite Near-term Liquidity Support

The $200 million fund infusion by British telecom giant Vodafone offers near-term liquidity support to Vodafone Idea, but longer-term viability remains under cloud, Credit Suisse has said.

Vodafone has advanced infusion of $200 million (about Rs 1,530 crore) in its Indian joint venture with Aditya Birla Group, that is facing a humongous liability of past statutory dues.

The accelerated payment to Vodafone Idea (VIL), which was otherwise due in September 2020, was made under terms of 'contingent liability mechanism'.

The amount, however, is relatively small when seen in the context of over Rs 58,000 crore liability that the cash-strapped Vodafone-Idea Ltd faces just on account of past statutory dues as a fallout of a Supreme Court decision, say experts.

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"Longer term viability of VIL continues to remain under cloud," Credit Suisse said in a note adding that it believes that the "sector is likely to be heading towards a two (private) player market".

According to Credit Suisse while VIL may be able to sustain over next two years with the spectrum and AGR payment deferment, "VIL's business viability is under cloud even at Rs 200 Average Revenue Per User (and subscriber base of 280 million) once the deferred spectrum payment resumes in FY23...

"The company will need strong operational improvement along with meaningful equity infusion (on which there is limited clarity) to sustain in the long term," the note added.

Vodafone Group on Wednesday said it has "accelerated this payment to provide Vodafone Idea with liquidity to manage its operations, and to support the approximately 300 million Indian citizens who are Vodafone Idea customers as well as the thousands of Vodafone Idea employees during this phase of emergency health measures, taken as a result of the COVID-19 pandemic."

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Consequent to the decision by the Supreme Court on the definition of Adjusted Gross Revenue in October 2019, India's telecom operators became liable for licence fees, penalties and interest dating back over 14 years, it further said.

"Vodafone Idea has made payments to the Government of India in relation to its AGR liabilities. Under the terms of the CLM (contingent liability mechanism), Vodafone Group is obliged to make payments to Vodafone Idea where amounts paid pursuant to the contingent liabilities of Vodafone India exceed those of Idea Cellular. The CLM took effect at completion of the merger of Vodafone India and Idea Cellular in August 2018," it added.

The telecom industry is staring at massive AGR dues, it owes to the government. These dues arose after the Supreme Court, in October last year, upheld the government's position on including revenue from non-core businesses in calculating the annual AGR of telecom companies, a share of which is paid as licence and spectrum fee to the exchequer.

The Department of Telecommunications (DoT), as per its own submission to the apex court last month seeking relief in payment tenure, had put dues of three companies -- Bharti Airtel, Vodafone Idea and Tata Group -- at Rs 1.19 lakh crore. Operators have so far only paid part of DoT-calculated dues, citing self assessment.

In March, following an approval by the Cabinet, an application was moved before the Supreme Court (on March 16, 2020) seeking its permission for the licensees impacted by the AGR judgement to pay the unpaid amount of past DoT assessed/calculated dues in annual instalments over 20 years.