Relief for India's Vodafone Idea – but will it be enough?

Relief for India's Vodafone Idea – but will it be enough?

The Indian cabinet has approved a relief package that may help to counter the effect of the massive debt burden faced by a number of players in the telecommunications market – most notably by operator Vodafone Idea.

Among a number of measures on offer, the package gives operators the option of converting a part of their dues into government equity now. They may be able to covert another part of their dues into equity after four years if the payment of those dues is still adversely affecting performance. 

According to India’s Economic Times news service, the package is also likely to include a four-year moratorium on AGR and spectrum payments, a reduction in bank guarantees, redefining AGR to exclude ‘non-telecom’ items (although this will not be retrospective) and allowing operators to give up unused spectrum.

Will this package be enough to rescue Vodafone Idea? In its April-June earnings report, the operator said its total gross debt as of 30 June was 1.92 lakh crore rupees. That equates to over $26 billion.

While the news saw a modest rally in Vodafone Idea shares, more concessions may be needed from government – notably on price floors – to ensure the beleaguered company’s continued involvement in the market as it seems potential investors are simply not interested.

The UK’s Financial Times points out that both Vodafone and the Birla group have refused to invest any more funds into their lossmaking joint venture.

However, the FT also points out that the government is worried about the sort of signal a Vodafone Idea collapse would send to foreign investors. This long-running saga may still be far from over.

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