Vodafone Idea's financial stress to impact telecom sector in India

Vodafone Idea's financial stress to impact telecom sector in India

Debt-laden telecommunication services provider Vodafone Idea (Vi)’s precarious risk position is likely to impact its rivals, the government, and the other stakeholders at large and could jeopardise the telecom industry in India.

“Vodafone Idea Limited (VIL) has been under financial stress as reflected by mounting losses and burgeoning debt levels, which is likely to impact its financial lenders as well as Government, apart from having a bearing on its employees, its subscribers and associated industries, most prominently towers,” said a report by the rating agency ICRA.

“In a scenario of Vi’s collapse, tower companies will lose around 1,80,000 tenancies that the company occupies, and of these, only 40-50% of the tenancies (are likely) to be regained by tower firms while the balance would be lost owing to redundancies and network realignment,” Sabyasachi Majumdar, group head & senior VP, ICRA, said in a press release.

There are about 550,000 towers in the country and each tower can have multiple tenancies.

Emphasising that the government support is "critical" at this point, ICRA said the support can be in the form of deferment of spectrum dues, reduction in levies, and reduction in interest rates.

Vodafone Idea is pressured because of its INR 1.9 trillion ($26bn) debt burden, including INR1.06tn in deferred spectrum payment obligations, adjusted gross revenue (AGR) liability of INR621.8bn due to the government and INR234bn in liabilities to banks and financial institutions.

The AGR penalty added to the woes of the industry and has kept the debt levels elevated. Owing to the aforementioned reasons, the financial position of Vodafone Idea Limited (VIL) has been deteriorating due to mounting losses and increasing debt levels, the ICRA said.

As per ICRA, VIL occupies a 35% tenancy share and 36% revenue share. In a situation of VIL shutting down operations, tower companies would have to face a loss of these tenancies, translating into revenue and EBITDA decline for the industry.

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