Monday, September 26, 2022

Birla offers his stake in Voda Idea to govt


Analysts said Birla offering his stake to the government has some basis as a lot of government money is riding on the company.Analysts said Birla offering his stake to the government has some basis as a lot of government money is riding on the company.

Kumar Mangalam Birla, the chairman of financially troubled Vodafone Idea (VIL), has offered to give up his stake in the company to any public sector, government or domestic financial entity which can keep the company as a going concern.

Birla made the offer to the government through a letter on June 7 in which he also listed the areas where the Centre’s support was needed by the end of July. Without the help, he said, the company’s operations would be driven to “an irretrievable point of collapse”.

“It is with a sense of duty towards the 27 crore Indians connected by VIL, I am more than willing to hand over my stake in the company to any entity – public sector/government/domestic financial entity or any other that the government may consider worthy of keeping the company as a going concern,” Birla said in the letter.

“I and my team will be more than happy to work with the government to urgently explore all possible options and solutions to save the company and strengthen it in the national interest without any consideration of our private interest,” he added.

The letter, addressed to Cabinet secretary Rajiv Gauba, has sought the government’s support in the areas of AGR (adjusted gross revenue) liability, adequate moratorium on spectrum payments, and most importantly, a floor pricing regime above the cost of services. “In the absence of definitive steps in this regard, the potential investors have understandable hesitation to invest,” Birla wrote in the letter.

Analysts said Birla’s letter was written on June 7 and since then certain developments have taken place where the government is not in a position to do much. For instance, on July 23 the Supreme Court dismissed the company’s (and other telcos as well) petition for correction in the arithmetical errors in calculating VIL’s AGR dues. The Department of Telecommunications (DoT) has pegged VIL’s AGR dues at Rs 58,254 crore, while the company has self-assessed it at Rs 21,533 crore. But with the SC dismissing its plea, the company will have to go by the government’s calculated amount. So far the company has paid Rs 7,854 crore. It earlier wrote to the government to defer by a year its deferred spectrum instalment of Rs 8,200 crore falling due in April 2022.

Further, the matter of floor price for tariffs is not a domain area of the government but of the Telecom Regulatory Authority of India (Trai). As reported by FE, the regulator is not keen on fixing any floor as it feels it may lead to objections by the Competition Commission of India (CCI) on grounds of cartelisation. This leaves before the government the only option to offer extension in payment of deferred spectrum instalments and reduction in licence fee and spectrum usage charges. Since these are inter-ministerial matters, any positive decisions would take quite some time.

The Aditya Birla Group has a 27.66% stake in Vodafone Idea. The other partner in the firm is Vodafone Plc, which has around 44% stake. The current market capitalisation of the company is around Rs 24,000 crore.

Regarding the efforts of Vodafone Idea to raise the required Rs 25,000 crore in funding, about which an announcement was made earlier this year, Birla has said, “To actively participate in this fundraising, the potential foreign investors (mostly non-Chinese and we are yet to approach any Chinese investors) want to see clear government intent to have a three-player telecom market (consistent with its public stance) through positive actions on long-standing requests.”

He added that VIL has made every possible effort to improve its operational efficiency through prudent capital spending, manpower restructuring and a whole host of cost reduction measures. “Despite all that, the financial condition (particularly the liquidity position) of the company has sharply deteriorated”.

Analysts said Birla offering his stake to the government has some basis as a lot of government money is riding on the company. For instance, of Vodafone Idea’s net debt of Rs 1.8 lakh crore, government dues in the form of deferred spectrum payment (Rs 96,300 crore) and AGR dues (Rs 61,000 crore) come to around Rs 1.57 lakh crore.

Deutsche Bank, in its report, had suggested that the only solution for the government to keep VIL afloat is to convert its debt into equity, preferably while merging it with BSNL, and then providing it a clear commercial mandate based on profitability targets and incentives. “Should this happen, VIL shareholders would be heavily diluted, as government debt is roughly six times the current market cap,” the brokerage firm had said.

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