It is ironic that VI has three parents but none to love. All three are reluctant parents. The government wanted to stop duopoly when it chose to bail out VI but can a motley bunch of disinterested partners steer it on the path of revival?
The government will hold 33.14 per cent stake in Vodafone-Idea making it the largest single shareholder after the government at last blinked first on 3rd February 2023. Its stake will reduce to 32.09 after issue of shares to ATC Telecom Infrastructure Ltd. The promoter holding (Vodafone UK and Kumar Mangalam Birla) in the firm will reduce from existing 74.99 per cent to 50.36 per cent and further fall to 48.76 per cent after stake issue to ATC.
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In return for picking up this stake sans cash infusion---shares have been allotted to GOI in lieu of interest on AGR dues---the government has reportedly wangled a commitment from Birla that it would not only assume charge of the day-to-day management of the telecom company but also mobilise requisite cash infusion. Time alone will tell what this commitment actually translates into.
The issuance of shares in lieu of interest has been hanging fire for the past several months with the government linking the move to infusion of funds by the promoters. Lenders too adopted a wait and watch approach holding back fresh funds in the absence of government stake in the company. So, the government has had to bite the bullet in the hope the promoters in return will do their parts.
In October 2021, the Union Cabinet had cleared the telecom reforms package aimed at improving liquidity and ease of doing business. Telecom companies were offered the option of four-year moratorium on spectrum and Adjusted Gross Revenues (AGR) dues and granted an option to convert interest on deferred liabilities into equity. AGR dues became an albatross round the necks of the Telcos following the Supreme Court refusal to halt the rampaging Department of Telecommunication (DOT) in its tracks. While awarding the 2G licences in 2001, the DOT had insisted on Telcos paying a sliver of AGR to it including on non-telecom revenues.
Also read: India finally clears conversion of Vodafone Idea’s interest dues, to take 34% stake in telco
In fact, this overreach along with unrealistically high spectrum charges broke the backs of many Telcos including Vodafone-Idea. Unfortunately, the Apex Court did not come to their rescue and instead let them stew in their own juices----you signed on the revenue share arrangement that put a shovel on non-telecom revenues as well with eyes wide open, didn’t you? Pay a price for it!!
The absurdity and avarice of DOT would be apparent from an example. If the agreement between the pharma giant Pfizer and its Indian partner envisages a 5 per cent royalty, obviously the licensee Indian partner would have to pay 5 per cent of sale of the medicine that is the subject matter of patent and not on its entire sales turnover. Somehow this simple logic was initially lost on DOT but when it belatedly realised its overreach and started smoking the peace pipe with the Telcos, the SC came down on it heavily for working against its order which had let the Telcos stew in their own juices. Be that as it may. The bottom line was thanks to the overreach, Telcos were faced with a crushing burden of Rs 92,000 crore.
VI never really recovered from this crushing blow that sent it in search of Rs 25000 crore to bolster partially its funds position that was pathetically tottering----just Rs 350 crore cash as against the gargantuan debt of Rs 1,80,000 crore. And it was around this time KM Birla the Idea boss gave dark hints of throwing in the towel and beseeching the government to take over his stake gratis! Vodafone UK had already washed its hands of its Indian baby.
The Government has blinked first but it must know that equity is not exactly elixir invariably. In fact as it is it is a dud with market quoting VI at Rs 6.28 after the government bailout whereas it has paid Rs 10 per share albeit not in cash but by bringing down its interest claim on AGR dues. State Bank of India took the grounded Kingfisher Airlines shares in lieu of a part of the dues owed by the airlines and they turned out to be duds.
One hopes the government has done its homework and entered into a watertight tripartite shareholders’ agreement with Vodafone UK and Idea to ensure that they fulfil their commitments. Or else they may laugh up their sleeves at the government’s naivete. VI has piled up debts of a whopping Rs 2 lakh-crore and losses so much so that its net worth stands in the negative at around Rs 67,000 crore. Has the government rushed where angels fear to tread? Has it bought pig in a poke? We will know soon enough.
Also read: Vodafone Idea promoters must infuse money as conversion won’t bring capital: Telecom Minister
Meanwhile the government will be in the unenviable position of fielding conflict of interest charges. It is already a player through its companies MTNL and BSNL. Now it will have to make telecom policies that do not hurt all the three. To be sure, it might not be managing VI but critics would not buy that argument.
It is ironic that VI has three parents but none to love. All three are reluctant parents. The government wanted to stop duopoly when it chose to bail out VI but can a motley bunch of disinterested partners steer it on the path of revival? We will know soon enough.
While how things pan out remains to be seen, the government can set about ordaining an Air-India style rehabilitation. To be sure Air-India was a government company whereas in VI the government is only the largest shareholder stopping short of majority shareholding.
Yet, the government must show a sense of urgency so that things don’t drift as they have been all these years with the original promoters showing no seriousness. It is time it told Birla or Vodafone UK to shape up or ship out. Vodafone UK is winding down its worldwide presence in the telecom business. So, its vacillation is understandable. Birla must be made to take a call one way or the other. Tatas took the bait as Air India was offered cheap. Perhaps KM Birla too would if VI was offered to him on reasonable terms.
—The author, S Murlidharan, is a CA by qualification, and writes on economic issues, fiscal and commercial laws. The views expressed are personal.
Read his previous articles here
(Edited by : C H Unnikrishnan)
First Published: Feb 6, 2023 12:32 PM IST
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