Investors Hesitant, Vodafone Idea on Road to Collapse: Birla’s SOS to Govt.
Aditya Birla Group chairman Kumar Mangalam Birla has offered to hand over his stake in Vodafone Idea Ltd to any state-run company or financial institution in a bid to keep the debt-laden telecom operator afloat.
The billionaire has written to the government saying the company has been trying to raise Rs 25,000 crore to sustain its operations but potential foreign investors—all non-Chinese—have shown “understandable hesitation” to invest. The investors, he added, want to see “clear government intent” to have a three-player telecom market in India.
Birla, one of India’s wealthiest people, also said that without the government’s help Vodafone Idea is heading towards an “irretrievable point of collapse”.
The Aditya Birla Group owns an 18.48% stake in Vodafone Idea, partly via publicly listed group companies Grasim (11.55%) and Hindalco (2.6%). This stake is now worth Rs 3,929 crore after the telecom firm’s stock crashed 10% on Tuesday in a Mumbai market that jumped 1.65%.
What really happened?
The unprecedented statement comes after the government slapped a hefty bill on Vodafone Idea, Bharti Airtel Ltd and some other companies asking billions of dollars in past dues.
The government says Vodafone Idea owes more than Rs 50,000 crore as per a revenue-sharing arrangement under the licensing norms. Telecom companies pay a percentage of their adjusted gross revenue (AGR) as license fees to the government. While the companies argue that income from non-core businesses such as rent should not be included in the AGR, the government thinks otherwise. The Supreme Court, too, has sided with the government.
Birla said the government must provide clarity on the AGR liabilities and allow it a moratorium period to make the payments.
Why it matters?
The telecom sector was bustling with a dozen companies until a few years ago. But only three private-sector companies—Vodafone Idea, Bharti Airtel and Reliance Jio — are in operation now, in addition to state-run MTNL and BSNL. This is in thanks in part to the near-zero tariffs that Reliance Jio introduced when it launched five years ago.
If Vodafone Idea collapses, as Birla fears, the sector will effectively become a two-horse race with billionaire Mukesh Ambani-led Reliance Jio calling the shots. This could lead to massive job losses, drive tariffs higher and dampen consumer sentiment.
On the flip side, if the government does take over Vodafone Idea, the company and its employees will get a reprieve. But that may also be temporary, especially considering the state of affairs at most government-run companies including MTNL and BSNL.
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