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As reported earlier, Vodafone Idea is mulling to pay some part of the AGR dues to the government in the aftermath of Friday’s rebuke by justice Arun Mishra.
As per the latest report, VIL today proposed to pay Rs. 2500 Crore and another Rs. 1000 Crore by Friday (21 Feb), but the Supreme Court has rejected the proposal from the company.
The Rs. 3500 Crore payment is half of the principal amount – Rs. 7000 Crores of AGR dues, and the company requested Hon’ble Supreme Court that the telecom department should not take any coercive action and invoke bank guarantees as it would hamper their operations.
However, the Supreme Court has rejected the pleas and is in no mood to entertain Vodafone Idea. In the last judgment, the court has asked the operators to pay a substantial amount immediately and the rest of the amount before 17 Mar 2020. Bharti Airtel has already deposited Rs. 10,000 Crore and has confirmed that they will pay the remaining amount before the due date.
VIL is in a more tricky situation, and both Vodafone Global and Aditya Birla Group so far have not given any commitment to pay the dues.
In case the government of India fails to help the company, it is likely game over for the once biggest telecom player in India.
Many companies like Videocon, Aircel, Reliance Communication, Uninor have failed in India, but they had a much smaller subscriber base, employee count, and revenue.
Most of these companies were struggling due to a lower count of subscribers and revenue generation. Unlike VIL that will go down due to the policy regulation by the DOT, and the draconian AGR dues.
It is like killing a healthy company for greed to earn more money.
After the closure of several foreign companies in the telecom sector, it is hard to see anyone daring to put money in the future.
We will be left with two choices – JIO or Airtel.
Vodafone’s Nick Read Says they Won’t Invest More In Vodafone Idea
Vodafone Group CEO Mr. Nick Read has said in a statement that they will not invest any more funds in the Indian venture (VIL) and has asked for relief from the government.
He said that they want a mortarium period of 2 years for the principal payment of AGR dues( of more than Rs. 53,000 Crore) and 10 years payment term. They will not be able to pay the interest and want the government of India to wave off interest.
Mr. Read reiterated that his company will not be able to infuse any more funds in the venture and the situation of the business in India is critical.
“Our position has not changed at all. We will not be injecting any new additional capital into India… following the AGR ruling by the Supreme Court, the situation in India is critical,” said Read. source ETNick Reads Vodafone Group CEO
He also said that the delay in providing relief to Vodafone-Idea on the AGR dues and approval of the merger of Bharti Infratel and Indus tower has caused an immense financial burden on the company.
Vodafone-Idea and Airtel have already filed a curative review petition with the Supreme Court to discuss the payment terms and seek relief in the matter.
Earlier, Mr. Kumar Manglam Birla ( Chairman of Vodafone Idea) has already said that they will shut shop in case there is no relief and it is not sensible to throw good money after bad money.
Further, the 5G auction is happening in April 2020 and Airtel or Vodafone-Idea doesn’t seem to have funds to buy the spectrum.
The telecom sector is plagued by the Supreme Court AGR judgment and will push the 5G roll-out a couple of years back.
In case the government/court doesn’t change the judgment, we can expect the market to be dominated by JIO. As VIL will shut down and Airtel will be cash stripped the only player in the market will be JIO.
In such a scenario, I expect JIO alone to infuse more money and deploy 5G. Leading to a monopoly situation and the company can have upto 80% of the revenue market share.
Read Below the Previous article on the AGR dues case, also share with me what you think about the current state of affairs in the telecom sector. I am listening.
Vodafone-Idea, Airtel Gets the Much Needed Relief from Government
21-November-2019 – Mr. Narendra Modi headed cabinet on Wednesday (20 Nov 2019) approved the recommendation of the Committee of Secretaries (COS) and allowed Telecom companies a 2-year moratorium on Spectrum payment.
Notably, VIL and Airtel were required to pay 76,000 Crore to the government which is now deferred by the government to give some breathing space to the struggling telecom companies.
However, Telecom companies will have to provide a bank guarantee to get relief from the government.
Additionally, in the words of Finance Minister Ms. Sitharaman, companies need to pay the interest for the deferred payment and NPV of the due amount will remain the same.
As per the comments of Mr. Sanjay Kapoor, former Airtel CEO, this decision will not have any positive impact on the balance sheet of the telcos which are still required to pay the full amount with interest.
They have just got the much-needed breather but in the long run, they will need to raise the rates to make the business more sustainable and able to raise more funds for 5G deployment.
This is the first positive news that has come for the sector after the AGR verdict by the Hon’able Supreme Court.
Notably, the companies need to still pay a huge amount but the burden is deferred now. It may not be as positive as getting some relief in terms of reduced payment or waiver of interest.
Nevertheless, Vodafone-Idea, Airtel and JIO are already planning to increase tariff in December and we can expect a 30-40% increase in the current rates.
Notably, JIO has already raised tariff by 15%, in the name of IUC charges and will further increase them in December.
The future of Vodafone-Idea seems more certain than before. The company was destined to shut shop if there would not have been any relief.
It is difficult to say if this relief is enough for the promoters (Vodafone PLC and Aditya Birla Group) to infuse more capital in the company and work on revival.
Vodafone-Idea shares have already rallied more than 100% in the last 3 trading sessions and is likely to increase further.
Airtel is in a more stable position than Vodafone-Idea and is likely to gain in the stock market in the coming days.
Vodafone-Idea Share price is also going to be volatile and depending on the sentiment can swing on either side.
In the initial trade on 21st November, the stock has opened 10% down which means there is a sell pressure and markets are not seeing this as a positive decision.
But there is no panic selling happening as of yet and it can also rebound.
Statement of Finance Minister Ms. Nirmala Sitharaman.
Statement from Mr. Sanjiv Kapoor, former CEO of Bharti Airtel.
Finance Minister Nirmala Sitharaman Raises Hopes for Telecom Sector – Telecom Stock Rallies
Indian Finance minister Nirmala Sitharaman hinted that they are looking forward to reviving the Telecom companies and are keenly interested to help businesses strive and do well in the market.
The Vodafone-Idea stock rallied and it gained 27.12% before closing of trade on the hopes of a revival.
The stock was trading at a low of Rs. 2.40 and later in the day closed at Rs. 3.75.
“We want no company to shut their operations. We want everyone to flourish,” she said at a press meet in New Delhi.
Considering the above, it seems that the government is looking forward to offering some help to the incumbent telecom operators.
Vodafone’s global CEO has already said that it will be very difficult for the company to survive in case they have to pay the AGR dues to the DOT.
There is a lot of speculation in the market, about whether one should invest or not invest in the VIL share at the moment.
As far as we know, the survival of the company greatly depends on the amount of relief provided by the government.
The company not only has these obligations but also has huge borrowings which are difficult to pay when the company is having operating losses.
The stock price, in the long run, will entirely depend on what the government decides and it will be very risky in my opinion to put money in the VIL stock at the moment.
In the last 1 year, the stock has come down from Rs. 22.1 to Rs. 3.5 which clearly shows the company is struggling to continue. The AGR judgment seems like the last nail in the coffin.
There is a lot of upside to the stock, but it will not be prudent to invest money in this stock until there is clarity from the Government and the company about future plans.
Also Read: Vodafone Idea – Can it Shut Down? (Job Cuts, 2020 Outlook)
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