Vodafone Idea at Risk After India Court Rejects Plea

(Bloomberg) -- India’s top court rejected a plea by mobile carriers seeking more time to settle billions of dollars in back-fees and began contempt proceedings against the companies, threatening to push Vodafone Group Plc’s beleaguered local venture to the brink weeks after it warned of a potential collapse.

The Supreme Court’s three-judge panel, headed by Arun Mishra, said Friday that operators including Vodafone Idea Ltd. and Bharti Airtel Ltd. -- owing a total of $13 billion in back-fees for spectrum and licenses -- must deposit the dues by March 17. The companies’ shares plunged.

In its October verdict, the top court upheld the way the government calculated fees using a formula disputed by the companies, and in January, it rejected their petition to reconsider the order. But it had agreed to hear their plea to extend the schedule from the original due date of Jan. 24.

The latest setback now leaves few options for Vodafone Idea, which needs to pay $4 billion, the highest among its peers, even as it struggles to stem record losses and rein in net debt that has ballooned to $14 billion. Highlighting its dire finances, Chairman Kumar Mangalam Birla said in December that the firm may be headed toward insolvency in the absence of any relief.

With U.K.-based Vodafone having signaled it isn’t likely to plow any more money into the venture in which it holds 45%, it falls on the Indian partner and billionaire Birla to chart a future course for the teetering operator. “It doesn’t make sense to put good money after bad,” Birla said Dec. 6.

A collapse of the nation’s second-biggest wireless operator and the accompanying job losses would be another embarrassment for Prime Minister Narendra Modi, who rode to power promising employment opportunities for the country’s youth. On Modi’s watch, Jet Airways India Ltd. grounded its planes last year after buckling under debt. The airline, once the nation’s largest, is now facing bankruptcy.

Vodafone Idea’s woes highlight the struggle Indian telecommunications companies have faced in a market plagued by high spectrum and license fees, frequent policy flip-flops and endless tax demands.

As more than a dozen operators jostled for a slice of the world’s second-biggest market by subscribers, frequent price wars weighed on the earnings of companies that were spending billions of dollars on their networks.

In 2016, the entry of billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd. pushed others to the edge. Jio’s free calls and cheap data forced two into bankruptcy, prompted some -- like Vodafone and Idea -- to merge and many to pack up. Two non-state carriers -- Bharti Airtel and Vodafone Idea -- survived the war, while Jio came out on top.

Vodafone Idea has been losing millions of subscribers to Jio, which racked up more than 370 million users in about three years.

Even if Birla decides to revive Vodafone Idea, getting the capital to claw back those users who left for Jio will be a hurdle.

“The challenge is where will the money come from to survive and expand,” said Neerav Dalal, an analyst at Kim Eng Securities Pvt. in Mumbai. “They’ve got to think something out of the box to come out of this.”

Shares of Vodafone Idea sank as much as 12% on Friday, extending their losses in the past year to 78%. Bharti’s shares declined as much as 1%.

The dispute between the government and the operators over the calculation of fees has meandered through India’s legal system for years. The court decided to reject the pleas for extra time despite the Modi administration’s willingness to negotiate the terms of payment in the wake of Birla’s warning.

Stripping out interest from the dues or a staggered payment are some ideas the government can discuss, an official with knowledge of the matter said last month, asking not to be identified citing rules.

Facing a bill of $3 billion, Bharti Airtel sold shares and convertible bonds to help raise the amount last month. Although Bharti Airtel -- which counts Singapore Telecommunications Ltd. among its main investors -- is also weighed down by net debt of almost $16 billion, investors are betting on better prospects for recovery in a market left with fewer carriers after the consolidation.

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