In this article, we have detailed the stake sale to the GOI, Government's Telecom Relief Package, the AGR case for Vodafone-Idea, it's implications, funding, and investors. Will the company Shut Down or not, some predictions about the stock price, and the future Outlook of the company.
Vodafone Idea Funding News Update - Amazon May Invest Rs. 20,000 Crore
23 June 2022 - Vodafone Idea is said to raise 436 Crore from the parent company Vodafone PLC. The company has informed the Bombay Stock exchange that the parent company has approved the proposal.
The funding will be done at a valuation of Rs. 10.20 per share. The equity shares will be issued to Euro Pacific Securities Ltd. (a Vodafone Group entity and promoter of the Company), on a preferential basis”.
The infusion of capital by the parent company is a positive sign as the cash-strapped telecom has been struggling to raise funds. Also, for a long time, both ABG (Aditya Birla Group) and Vodafone Plc have not induced any funds into the system. The availability of funds is crucial for the company as it prepares for the battle of 5G.
The VI shares have also gained some lost ground after the news broke out.
Vodafone Idea 35.8% Stake Sale to the Government of India
There was a knee-jerk reaction to the stake sale news of VI to the Government that lead to a 20% decline in the share price for the company on 11th January 2022.
Based on the Telecom Relief Package the company plans to offload a 35.8% stake to the Government at Rs. 10/share and raise Rs. 16,000 crore. If the government approves the stake sale then Vodafone Group (UK) will have 28.5% share and Mr. Kumar Mangalam Birla-owned Aditya Birla group will have 17.8% share from the existing 44.39% and 27.66% shares respectively.
While the markets reacted negatively from the short-term growth point of view; Analysts believe that this can be good for long-term survival.
There are several benefits to the company due to the stake sale, some of them are as follows:
1. GOI as the single largest investor has a higher credit rating than the other partners.
2. Which in turn can attract more investments for the company from institutional investors.
3. The GOI's presence as a large stakeholder also improves the regulatory point of view towards the company and will have some future protection from predatory rivals.
4. The company may have more cash and credibility to participate in the 5G auction and roll out the 5G services that will define the future of the company.
On the negative side, there are concerns about the future prospects of VI; and will it be a competitive player in the fierce telecom market ruled by Reliance JIO.
Vodafone Idea - Can it Shut Down?
The short answer is - No. The Telecom Relief package by the GOI has made a huge difference to the outlook of the company, which otherwise would have collapsed.
Now you can read the long answer and the reason why it will not shut down. There are many pieces in this puzzle, and Vodafone-idea's survival and growth are dependent on several factors.
Firstly, Vodafone-Idea is not a small company - they employ over 12000 people and have yearly revenue of Rs. 40,000+ Crores. The company has a subscriber base of 2.7 Crore users. You can't close a company of this size and magnitude overnight.
Steps Taken By GoverGovernmentment to Improve the Telecom Sectors Financial Viability:
- The reduction in Bank Guarantees requirements (80%) against License Fee (LF).
- Lower Interest rates and Penalties removal - Delay in payments for License fees and Spectrum Usage Charges will have MCLR + 2% interest rates (earlier was MCLR+4%).
- Penalties and interest on penalties is removed.
- No Bank Guarantees are required for the Auction installment payments.
- The spectrum lease tenure is increased from 20 to 30 years.
- Surrender of the spectrum will be permitted after 10 years for spectrum acquired in future auctions.
- Telcos can share Spectrum and the SUC of 0.5% for spectrum sharing is not applicable anymore.
- Now there is Automatic approval for 100% Foreign Direct Investment (FDI) in Telecom Sector.
So are the new Telecom Reforms sufficient for VI to survive?
The Short Answer is Yes.
Considering the company will not have to pay installments for SUC (92K Crore) and AGR Dues (58K Crore), there is a significant reduction in terms of liquidity crunch. Also, they are getting an option to pay interest through the equity route can be an added advantage.
The statement from the promoters of the company - Mr. KM Birla and Nick Read is quite positive and as per the statement, they are looking forward to reviving the business and moving ahead.
Mr. K.M Birla Said, “The pathbreaking reforms announced by the government today will go a long way in unshackling the telecom sector”.“We commend the resolve shown by the Government of India, under PM Modi's Leadership, to find a comprehensive solution that would support a competitive and sustainable telecom sector in India", said Nick Read, CEO, Vodafone Group.
The Major Updates that Will Shape Up the Future of the Company:
There is a major relief in terms of the Telecom package by the government but there are still some major concerns for the business.
The path ahead is hard; huge debt and financing costs, 5G investments, and unforgiving rivals with deep pockets.
The GOI has deferred the AGR payments the company still has to pay the 58K Crore AGR Dues with interest and even the arithmetic errors are not allowed to be corrected so far.
The company has lost market share, talent pool, and most importantly the brand name has lost its glory in the last 2-3 years. The consumer experience has not been great and a huge number of high-paying users have ported to rivals. The rebranding to V! from Vodafone-Idea shows the company is not giving up the fight. But branding is not sufficient. They will have to increase the subscriber and revenue market share.
Also, considering the stock price has taken a beating, it is hard for the company to show valuation to potential investors and raise funds as Reliance Jio did. However, after the Relief package, I expect things to change and they will likely attract investments.
V! has been in talks with several investors, and hopefully, we may get good news in the coming months.
Another challenge is to invest heavily in the roll-out of 5G services in the next couple of years. V! can't be late to the market with 5G, as more high-value customers can churn and port to JIO or Airtel.
How much funding they can get from Investment firms or promoters will shape up the future.
Lastly, the company will have to raise tariffs to improve the profitability of the business. The company is making losses quarter after quarter and will have to eventually increase the prices for both Prepaid and Postpaid subscribers to get back in the game.
Vodafone Idea Share Price - Prediction and Target for 2022
The Vodafone Idea share reached the low of Rs. 3.4 in Feb 2020. Back then, the uncertainty around the survival of the company was at its peak.
The dismissal of arithmetic errors calculations also impacted the Share price and it tanked from Rs. 10 to Rs. 6 in August 2021.
However, on 16th September the Share price has increased by 25% and closed at Rs. 11.4 after the telecom relief package by the GOI was announced.
The Vodafone Idea Stock price is range-bound from Rs. 8 to Rs. 12 and will probably see a break-out only if the company is able to secure a significant amount of funding from an investor.
AGR Case and its Implications
2nd August - Kumar Manglam Letter to Rajiv Gaube, Cabinet Secretary: Mr. Kumar Manglam Birla in a letter dated 7th June 2021 has written to the cabinet secretary the following:
"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. 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," Birla said in his letter dated June 7 to Rajiv Gauba, Cabinet Secretary.
AGR Case Update - On 22nd July 2021 -The Supreme Court today rejected the plea for the recalculation or reconciliation of errors in the AGR calculation, dealing a big blow to the incumbent telcos (Vodafone-Idea, Airtel, and Tata Telecom). The Supreme Court judgment on the deferment of payments for the AGR dues gave some respite but seriously cripples the company and its future outlook.
The apex court in its AGR judgment has said that the company can pay the Rs. 58,000 crores of AGR dues in the 10 year period. Also, Mr. Birla's letter to the government clearly shows that they don't have any plan or hope for the company and he is even willing to give away the 27.2% stake that he has in the company. (Rest 44% stake is owned by Vodafone Group).
Update 14th Feb 2020 - AGR Verdict and Review Petition
Today, the Supreme Court rejected the review petition filed by Vodafone-Idea and Airtel in the AGR (Adjusted Gross Revenue) case.
Three Bench Judge Panel, headed by Justice Arun Mishra was extremely angry at the Telecom companies for defying the orders to pay dues before the 24th January 2020 deadline. To recall, VIL needs to pay 53,000 crores and Airtel 35,000 Crores.
Both Telecom companies were seeking relief from the apex court in terms of waiver of interest or increase in the payment period. But instead, they got thrashing by the court for not obeying the previous judgment where the court has ordered them to pay the dues.
Justice Arun Mishra said” “The companies have violated the order passed by this court in pith and substance. In spite of the dismissal of the review application, they have not deposited any amount so far.”
“It appears the way in which things are happening that they have scant respect to the directions issued by this court,”
Also, DOT decided to take no action against the incumbent Telecos. They also faced the wrath of justice Arun Mishra. Previously, DOT officials passed an order to take no action against VIL & Airtel for not depositing the required dues.
“This kind of order should not have been passed by the desk officer at all. In the circumstances, we draw contempt proceedings against the desk officer for passing the order and violating the order passed by this court,”
Justice Arun Mishra was furious at the turn of events and asked the companies to clear the dues or the MD and directors need to be present at the next hearing scheduled on 17th March 2020.
This is a subtle way to say, you may go to jail in case you fail to pay the dues to the government. An extremely unpleasant situation for both Mr. Sunil Bharti Mittal and Mr. Kumar Manglam Birla.
The words of the judge sent shivers in the top management of both Telecom companies. Airtel in its quick response has agreed that they will cough up Rs. 10,000 Crore by 20th Feb and the remaining before the next hearing.
DOT officials also sprung to action and have issues notices for the payment of the dues to the Telecom companies.
VIL, on the other hand, seems to be buying time and said they are planning to pay some part of the dues before the next hearing. They have not specified how much and when. But they will pay in the coming days. Also, in the statement shared by VIL, they categorically mention that the company may not continue in case there is no relief from the government or the Supreme Court.
The stock price for VIL tanked by 24% on Friday after the Supreme Court order.
VIL is in a fix as both Mr. Birla and Nick Read have said previously that they are not keen to run the business if they have to pay the full amount.
Also, the recent letter by the company clearly states they may not be able to continue business in the absence of relief from the government.
So, will VIL shut shop? It is a tricky situation and at this point, the company can go in any direction.
Updated - 18/January/2020
Vodafone Idea May Survive the AGR blues as per a recent ET report. The company is planning to take some stern actions to stay afloat.
Why Vodafone Idea May Not Shutdown? 6 Steps Company Plans to take.
- Pay part AGR dues before the 23rd January deadline. VIL can pay upto Rs. 4000 crore to show the court and government that they have the intent to stay afloat and do business.
- Ask the Government to re-evaluate the dues and offer either more relief in terms of payment schedule or the interest on principal payment.
- According to DOT VIL owes 53,000 Crore in dues. However, the company is doing a self-assessment of these and sources say they may actually owe Rs. 44,000 Crore.
- The government owes VIL Rs. 9000 crores as GST input credit that the company intends to use to pay the AGR dues.
- Lastly, they are planning to sell the data centers and optic fiber business along with an 11% stake in the Indus Towers to raise money.
- Also, the cash flow for the company has improved as they have increased the rates by up to 40%.
All of the above plus some help from the Vodafone Global and ABG group can make it possible for the company to survive and have a future.
Another interesting update is that RBI is urging the Government to bail out the company to ensure that the loans given by major banks don't turn into NPAs.
Also, with the country burning due to CAA and other issues it is not prudent for the Narender Modi government to have 300 million VIL users aggravated due to the shutting of the company. Not to mention, it will be a big hassle to port these users to other operators who may find it difficult to maintain QOS (quality of service).
17-Jan-2020 - The dark clouds of fear yet again loom over Vodafone and Idea. The Supreme Court of India has rejected the AGR relief plea filed by VIL, Airtel, and Tata-Teleservices. There may be panic in the share market, and the stock price is expected to tumble after today's AGR judgment. (It tumbled 30% in the opening trade).
On 24th October the Supreme court has given the judgment to widen the AGR definition and decided the case in DOT’s favor. Due to the change in AGR, Bharti Airtel needs to pay 35k Crore, VIL 53K crore, and Tata Teleservices 14k crore to the government.
Telecom operators were expecting some relief from the Honorable Supreme court but the court has decided not to offer any respite.
The review petition was heard by the same 3 bench judges panel (headed by justice Arun Mishra) who have given the original verdict. It was unlikely that they would have reversed the original verdict. The court is not considering the poor financial condition of the sector. Investors and promoters were expecting some relief from the court. However, there is none.
Mr. Kumar Mangalam Birla has already said they will shut shop if there is no relief on the AGR from the Supreme court or from the government.
On the other hand, Finance Minister Nirmala Sitharaman has already said that they are unlikely to offer much help on the matter apart from the deferment of the payments.
The date for the first installment of dues is 23rd January and we will probably know if VIL will live or die.
It will be a huge catastrophe for 1000s of families that depend on VIL and also for the investors, banks, vendors, and lenders.
Our Economy is already in turmoil, youth have no real jobs but to act as delivery boys for large e-commerce giants. Telecom Sector has space for more than 3 players and it is in the interest of consumers to have more choices.
If VIL shuts, the Telecom sector will be left with just Airtel and JIO who have already raised the price and will again raise it more in the future.
Recently, Airtel raised $3 billion to deal with the AGR dues. After the Review petition judgment, the company has said in a statement that they are disappointed with the outcome and are thinking of filing a curative review petition.
The curative petition is the last constitutional remedy available with a person/company whose review petition has been rejected by the Supreme Court. The chances for reversal of original judgment are slim but Telecos are hoping against all the odds.
It is evident that VIL and Airtel will file the Curative Review Petition in the Supreme Court and may get a different bench of judges to hear the petition.
Also, I think VIL has enough funds to at least pay some of the 53,000 crore dues if they want to and they will pay the upcoming installments. We will know for sure in a week's time.
Also, we will have to see if the PMO and Finance Ministry offers some help to the distressed telcos who will find it harder to pump more funds in the 5G network after paying hefty dues.
So, let’s wait for official communication from VIL. Only after that, it will be more clear if the company will go with Mr. Birla’s words or will raise capital to fund the dues.
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