Vodafone India Unit Pleads for Relief After $7 Billion Loss
(Bloomberg) -- After posting the worst quarterly loss in India’s corporate history, Vodafone Group Plc’s besieged local venture is appealing for urgent relief from the government to help avert a collapse.
Vodafone Idea Ltd. took a one-time charge related to a $4 billion demand from the government for overdue fees, leading to a net loss of 509 billion rupees ($7.1 billion) in the three months through September, the company reported Thursday after the market closed.
Formed by the merger of the U.K.-based firm’s local unit with billionaire Kumar Mangalam Birla’s Idea Cellular Ltd., hasn’t reported a profit since the deal was announced in 2017.
“The company’s ability to continue as going concern is dependent on obtaining the reliefs from the government,” Vodafone Idea said in a statement late Thursday. It is “in active discussions with the government seeking financial relief,” it said.
Saddled with $14 billion of net debt, Vodafone Idea is fighting for survival after India’s top court last month ordered it to pay fees the government said were due from prior years. Vodafone Chief Executive Officer Nick Read told reporters this week in London that the situation was “critical” and unless India eases off on its demands, the venture may be headed for liquidation.
Rival Bharti Airtel Ltd. also posted a record net loss on Thursday after market hours, highlighting the financial stress of Indian operators stuck with high levels of debt while facing a price war unleashed by billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd. and more recently, the adverse court verdict on fees.
Bharti Airtel and Vodafone Idea shares gained Friday in Mumbai trading on optimism the government may provide help for the companies and as operating results showed some strength.
A government panel is considering deferring payments due by March 2021 and March 2022, an official said last month. It will also consider cutting spectrum fees and other charges, said another official, who asked not to be identified, citing disclosure rules.
Bharti Airtel’s shares rose as much as 9.1% Friday, while its 5.65% perpetual notes also advanced. The company’s “mobile performance was robust,” and grew from the preceding quarter, Saurabh Handa, an analyst with Citigroup Inc. in Mumbai wrote in a report. Vodafone Idea climbed as much as 10%, after dropping as much as 19% earlier in the day.
In its Oct. 24 verdict, the Supreme Court of India ruled in favor of the government’s method of calculating operators’ revenue, a decision that means carriers must pay about $13 billion combined -- mostly license and spectrum fees built up over years. Bharti Airtel owes $3 billion, while Reliance Jio needs to pay 130 million rupees, the least, since it has only been in business since 2016.
The finance ministry won’t back down from collecting the amount, which needs to be paid within three months as per the court order, an official with knowledge of the matter said this month.
The demands comes as Vodafone Idea and Bharti Airtel faces intense competitive pressure from Jio, which swept into the No. 1 spot by users earlier this year. The upstart controlled by Asia’s richest man barreled into India’s wireless market three years ago with free calls and cheap data, acquiring about 380 million users.
Jio’s entry drove some incumbents to bankruptcy, while others like Vodafone and Idea merged. But the pressure on earnings continued.
Bharti Airtel, whose parent counts Singapore Telecommunications Ltd. as an investor, had a net loss of 230.4 billion rupees for three months ended September, it reported Thursday. Billionaire Sunil Mittal is also one of Bharti Airtel’s biggest investors.
Losses at Bharti Airtel forced SingTel to also make such a hefty provision that it slipped into a quarterly loss for the first time.
Vodafone Idea said Thursday it took a one-time charge of 256.8 billion rupees.
Bharti Airtel continues to engage with the government, Gopal Vittal, the company’s chief executive officer for India and South Asia operations, said in a statement.
“We are hopeful that the government will take a considerate view in this matter given the fragile state of the industry,” said Vittal.
To ease the pressure on its Indian venture’s finances, Newbury, U.K.-based Vodafone, which owns about 45%, has said it wants a two-year delay on spectrum payments and lower license fees and taxes. It’s also called for the bandwidth fees demanded by the court to be spread over 10 years.
“If you don’t get the remedies being suggested, the situation is critical,” Vodafone CEO Read said on Nov. 12. “If you’re not a going concern, you’re moving into a liquidation scenario -- can’t get any clearer than that.”
Opt For Insolvency
Earlier, Read said Vodafone would refrain from plowing more money into India. The other venture’s other partner, Birla, won’t inject fresh equity and will opt for insolvency if the government doesn’t provide relief, the Economic Times reported Thursday, citing people it didn’t identify.
For its part, Reliance Jio has insisted its two smaller rivals can and should pay up on time.
|3Q Net loss||Avg. Est.||Net debt||Credit rating|
|Vodafone Idea||509 bln INR||-43.9 bln INR||$14 bln||A- (CARE)|
|Bharti Airtel||230.4 bln INR||-14.2 bln INR||$17 bln||BBB- (Fitch)|
India had a dozen independent carriers two years ago, and just three non-state operators are left standing today. The only clear winner has been Jio, which is backed by the deep pockets of Ambani’s sprawling energy-to-petrochemicals empire.
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