In an informal note to the PMO last month, the Department of Telecommunications (DoT) has proposed “multiple relief options”, including a further two-year pause on paying the statutory dues under moratorium currently, one of the two officials quoted said on the condition of anonymity. The PMO will take the final decision on whether any relief measures need to be extended, the person added.
Struggling Vodafone Idea owes about ₹83,400 crore in adjusted gross revenue (AGR) dues to the government, with annual payments of ₹18,000 crore beginning next March. Vodafone has previously said that banks are unwilling to lend more given the hefty dues, and that it will be unable to survive beyond a year without such funding. Overall, its total dues to the government stand at around ₹2 trillion, including penalty and interest.
A decision is significant given that Vodafone Idea owes ₹1,944.5 crore to banks as of June end and employs over 18,000 people, and a potential failure could reduce India’s telecom arena to a two-horse race.
The DoT also proposed giving Vodafone Idea more time to repay dues, smaller annual payouts, and a waiver on penalties, and interest on penalties on AGR payments, a second official said, also speaking on the condition of anonymity.
Cash-starved Vodafone Idea has struggled to match peers Bharti Airtel Ltd and Reliance Jio Infocomm Ltd in rolling out 4G and 5G networks. The government owns nearly 49% stake in Vodafone Idea after converting nearly ₹53,083 crore of dues into equity in two tranches in February 2023 and April earlier this year.
Queries emailed to DoT and PMO did not elicit any response till the press time.
In a letter dated 17 April, Vodafone Idea urged DoT to consider the principal of ₹17,213 crore–calculated by the department till FY19–as final and provide 100% waiver on interest and penalty on the AGR dues.
Bank funding stalled
“The main concern from the banks is that large dues are payable to the government, while the bank repayments are being made. A moratorium on AGR and spectrum instalments till at least FY30 will go a long way in the banks getting comfort that large GOI (government) dues are only paid after they have received a significant repayment of their new loans by FY30,” Akshaya Moondra, former chief executive officer of Vodafone Idea, said in the letter.
Vodafone Idea has been struggling to raise ₹25,000 crore in new bank funding that can be used to improve its 4G network and roll out 5G extensively, despite the government converting some of the dues into equity.
Banks are currently awaiting clarity on a potential relief on pending AGR dues.
“Our request to the government has been that let us resolve this (AGR issue) earlier than before the deadline of March so that banks get clarity and we can proceed with bank funding,” Moondra said in his last earnings call as CEO of Vodafone Idea on 18 August. The company, which has nearly 198 million users, is hopeful of government support.
In the absence of bank funding, a major part of the company’s capex plans of ₹50,000-55,000 crore for the next three years will be stalled.
The Supreme Court’s recent rejection of Vi’s plea to waive ₹45,000 crore in interest and penalties on the ₹83,400 crore pending AGR dues has further strained its prospects. The four-year moratorium on these payouts ends in September.
In an interview with Mint in April, Communications minister Jyotiraditya Scindia said the government cannot convert more dues of Vodafone Idea into equity, “The minute you convert more, it becomes a PSU (public sector undertaking), and the cabinet note very clearly says it has to be less than 50%,” Scindia had said.
On 16 May, Mint reported that Vodafone Idea told the Supreme Court that it will not be able to operate beyond the current fiscal year without bank funding, which remains elusive as lenders remain wary of its dues linked to AGR.
“It is important to note that this payment of approx. ₹18,000 crores which has to be paid on a yearly basis for the next 6 years, is far in excess of the Company’s operational cash generation capacity each year,” the company’s petition had said. For the last three years, the company’s annual operational cash generation was in the range of ₹8,400-9,200 crore, it said.
Airtel seeks relief, too
Even as Vodafone Idea has been struggling with its financials, Bharti Airtel too wants the government to convert some of its dues into equity to have a level playing field. In April, Airtel had urged the DoT to convert its AGR dues of about ₹40,000 crore into equity, which would give the government a 3-4% stake in the company.
“We have written to the government to extend the same relief as any other telco but that is a decision that the government will take and we will abide by whatever decision they take,” the company’s vice-chairman and managing director Gopal Vittal said on an analyst call on 6 August following the June-quarter results. “To that extent, I would say we have the room to make whatever payments are required.”
One of the concerns the second official cited is that in case of relief to just one operator, others who have a sound financial position will also start asking for relief and that would be a cost to the government’s potential recovery.
Airtel and Vodafone Idea did not respond to Mint’s queries.
“Investor attention is primarily on the much-delayed debt fund-raise, which is crucial to support capex along with upcoming AGR and spectrum obligations,” said analysts at Nuvama Institutional Equities in a note dated 18 August. “While parameters such as pace of subscriber loss and ARPU also need to improve, balance sheet repair has become highly crucial for VIL’s (Vodafone Idea) survival.”
According to Nuvama, a delay in debt funding continues to cloud visibility on the survival of Vodafone Idea.
The operator’s biggest financial strain stems from the AGR issue. In 2019, the Supreme Court ruled that Vodafone Idea and its peers need to pay statutory liabilities on AGR, which includes non-telecom revenue. There was a massive gap between the telecom department’s calculations and the self-assessed dues by telecom operators. For Vodafone Idea, the DoT calculated total dues at ₹58,000 crore against the company’s estimate of ₹21,500 crore. Such statutory dues are based on adjusted gross revenue that also includes non-telecom revenue. For Airtel, the original demand under the AGR case was ₹63,000 crore, including liabilities on acquired spectrum from Tata, Telenor, among others. Tata Teleservices’ AGR demand was ₹16,798 crore.
In September 2024, the Supreme Court rejected curative petitions filed by Vodafone Idea and other operators seeking relief in the apex court’s 2019 ruling.