The telecom sector in India is staring at another shake-up after the Supreme Court's AGR ruling. In the latest development, Aditya Birla Group has refused to inject fresh equity into the Vodafone-Idea joint venture. Further, the group may also opt for insolvency in the worst-case scenario if the government does not offer major relief. Interestingly, earlier this week, its partner in the group, Vodafone had also expressed its inability to further infuse money in the JV Vodafone- Idea has a major backlog of debt and the latest ruling by the apex court on the definition of adjusted gross revenue (AGR) has further riled up the liabilities of the company, the Economic Times reported.
One of the senior group executives said, "The telecom business seems to be making money for everyone else except the players. It is unviable and unsustainable and will only drag down the group's profitability. We need to rethink our capital allocation better in a difficult business environment." Notably, the development has come days after Vodafone Group CEO Nick Read showed his frustration on the scenario in the Indian telecom sector. On Wednesday Read said, "If you don't get the remedies being suggested, the situation is critical. If you're not a going concern, you're moving into a liquidation scenario - can't get any clearer than that." He further went on to add that the future of the Vodafone-Idea joint venture in India will in danger without any substantial support from the government. He also said that the global Vodafone group will not infuse further capital in India. The Modi led government resorted to its usual arm-twisting mode to convey its displeasure against Read's remark forcing the company to apologize.
Why is Vodafone-Idea seeking relief from the govt?
Last month, the Supreme Court allowed the inclusion of non-core items in the definition of AGR, leaving Vodafone-Idea with dues of more than Rs.28,000 crore in the additional license fee. Moreover, the company is also liable to pay over Rs.11,000 crore in spectrum usage charge dues, plus interest and penalties on both heads. With a ballooning debt of Rs. 99,000 crore, it registered a loss of Rs. 5,000 crore and revenues of Rs. 11,300 crore in the first quarter of the running financial year.
Cold response from Bank
Vodafone Idea approached multiple investment banks to secure capital from the overseas or domestic market. The banks even reached out to the global investors but due to lack of appetite, banks also did not take interest in any bond sale or syndicating any loan.
