Is troubled Indian operator Vodafone Idea (recently renamed Vi) really on the “point of collapse”, as Kumar Mangalam Birla has suggested?
The comments from the chairman of the Aditya Birla Group conglomerate in a letter to cabinet secretary Rajiv Gauba have been widely reported in the Indian press, along with his statement that Vi needs help from the country’s government.
The company is undoubtedly heavily indebted, not least due to adjusted gross revenue (AGR) dues set at well over $7 billion dollars (of which about a billion has been paid). Attempts to ask the Supreme Court to permit a recalculation of the debt (Vi has suggested that Department of Telecommunications' calculations are inaccurate) have, so far, failed.
Another possible solution to the problem came in the form of a Deutsche Bank report a few weeks ago suggested that the Indian government should consider converting Vi’s debt into equity and merge it with state-run telco Bharat Sanchar Nigam Limited (BSNL).
Something almost certainly needs to be done, not least to protect lenders, many of them public sector banks, which need Vi to remain operational and retain customers in order to recover their debt. There’s also the question of Indian jobs, along with the business applications that run on Vi’s networks. And of course there’s the small matter of 5G spectrum auctions and how Vi will pay for enough 5G spectrum to compete in the market.
Widely reported comments by Vodafone Group CEO Nick Read that his company won’t be injecting equity into Vi have done little for confidence, while the sale of assets such as Vi’s data centre in Navi Mumbai and around 160,000km of fibre optics, even if they attracted interest, would still leave it in a difficult position.
Upcoming payments are said to include AGR dues instalments, spectrum payments and interest costs. However, that is only a small part of VIL's gross debt, excluding lease liabilities, which is, according to some news reports, an eye-watering $24.3 billion as of 31 March this year.
The only bright sign at the moment is news that the government is preparing a relief package for the telecoms industry, though we may not know what it contains until late August.