Govt stands to lose whether it saves debt-laden Vodafone Idea or not

Vodafone Idea has not defaulted on bank payments and therefore is not a stressed asset and will not go to the IBC.

The government will have to make substantial payments, as well as forego revenues in FY’23, if it wants to work on the survival of Vodafone Idea because it will have to extend the same incentives to the entire telecom sector.

According to estimates, the industry has to spend around Rs 21,000-Rs 25,000 crore for spectrum which it bought on a deferred payment basis.

Vodafone Idea has asked for a moratorium for another year (FY23).

If granted, the government will have foregone the instalment payout for a third year in a row as it has already provided a moratorium for two years, giving telcos Rs 42,000 crore worth of relief.

However, the payouts will be adjusted with interest for the remaining years of the staggered payment (16 years) scheme and this remains unchanged.

According to the Cellular Operators’ Association of India (COAI) estimates, the total licence fee and spectrum user charges currently shelled out annually by the industry stand at over Rs 17,000 crore.

The industry, along with Vodafone Idea, has been pushing for a reduction.

Both want licence fees to go down from 4 per cent of AGR to 1 per cent and the 8 per cent spectrum user charges to be halved.

Again, this would mean a substantial reduction in payouts to the government.

Vodafone Idea is pushing for a third concession.

It is hoping the government will pay the GST refunds.

If so, the government has to give Rs 35,000 crore to all the telcos.

If, however, Vodafone Idea shuts down, the government also stands to lose revenue.

For instance, a COAI estimate last year calculated that the revenue loss due to GST, licence fees and spectrum user charges payouts would be to the tune of Rs 17, 000 crore.

The calculation was based on the assumption of Vodafone Idea being operational for the next 14 years.

Given that it stands to lose heavily either way, the government is likely to go in for a balancing act.

Sources in the Department of Telecom­munications say that discussions are on for possible concessions to the sector.

Vodafone Idea chairman Kumar Mangalam Birla, who stepped down from his position today, has written to the government saying that he is willing to give up his stake to any entity — public sector, government or domestic financial institution — to save the company.

He has made it clear that without the government’s active support on a moratorium on spectrum payments, AGR liability and a floor pricing regime, the company will collapse.

The problem is that the Supreme Court, by refusing to change the method of calculation of the AGR dues, has virtually closed off the possibility of the government making any such change.

It’s also believed that TRAI is not in favour of imposing a floor price.

Analysts say the company has failed in its plan to find strategic investors to raise Rs 25,000 crore.

The reason is that the existing promoters, which include Birla and Vodafone Plc, have decided against putting in any more money, a decision that reveals they have no confidence in the business.

Analysts explain that Vodafone Idea has not defaulted on bank payments and therefore is not a stressed asset and will not go to the IBC.

However, if it does become a stressed asset and goes to the IBC, it could impact the A V Birla group.

If that were to happen, they say, the A V Birla group would face a major impediment in making any future bids in IBC-stressed companies.

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Photograph: ANI Photo