Deutsche Bank Report: The Government Should Assume Ownership Of Vodafone Idea
By – Ashwathy Nair
- The vast bulk of Vi’s debt is made up of spectrum and AGR commitments, and the firm will eventually need to acquire a 5G spectrum.
- India’s only chance of keeping Vi is for the government to turn its debt into equity.
To avoid a duopoly in the telecom sector, the government should convert Vodafone Idea’s (Vi) debt to equity, according to a study released on Monday (26th July) by Deutsche Bank Research. In consideration of the Supreme Court’s rejection of the telecom company’s request for a recalculation of adjusted gross revenue (AGR) dues, the bank indicated that this would be the only realistic option.
“Spectrum and AGR liabilities account for the vast bulk of Vi’s debt, and the firm will need to acquire 5G spectrum at some time.” In his study, Deutsche Bank research analyst Peter Milliken stated, “Private investors are highly unlikely to sustain the firm, given consecutive governments’ targeting of telecom capital.” “We believe the only way for India to maintain Vi is for the government to convert its debt to equity, preferably by combining it with BSNL and then giving it a clear commercial mission based on profitability objectives and incentives,” he recommended.
As of March 31, Vi had a debt of ₹1.8 trillion, which included ₹96,270 crores in postponed spectrum commitments, ₹60,960 crores in AGR liabilities, and ₹23,080 crores in bank debt. Aditya Birla Group and Vodafone Plc of the United Kingdom control 72.05 percent of the firm, which has a market capitalization of approximately ₹23,000 crores.
Because the government debt is about six times the company’s current market capitalization, existing Vi owners would be substantially diluted, but such a solution could be acceptable to shareholders, he added.
The telecom operator has asked for a moratorium to be extended till April 2023 in order to pay nearly ₹8,000 crores in spectrum acquisition debts. Vi is required to pay that sum by April of next year but has requested an extension since the firm is not producing enough revenue. Separately, Vi has requested that the government give an opinion on the subject of telecom tariff floor pricing. It also wants to raise ₹15,000 crores from international investors, but so yet has made little headway.
“Providing another year of spectrum debt rollover is not the solution, in our opinion. A floor price may be, however, such debates appear to have stopped, and price regulation is not recommended. We believe the government is faced with a straightforward decision: either impose a floor price or recapitalize Vi. The latter option, in our opinion, is the better one,” Deutsche Bank Research stated.
Last Friday, the Supreme Court dismissed Vodafone Idea and Bharti Airtel’s petitions for the correction of claimed mistakes in computing AGR dues. After making a payment of ₹7,800 crores, Vi, which has been battling to remain profitable, estimated its remaining AGR dues at roughly ₹21,500 crores. However, the Department of Telecommunications (DoT) estimated Vi’s overall AGR obligation to be about ₹58,000 crores.
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