Pushed to Brink, What Next? Vodafone Idea’s Options Dwindle
Vodafone Idea’s gamble seeking more time to pay the $4 billion it owes the Indian government failed in the nation’s top court.
(Bloomberg) -- Vodafone Idea Ltd.’s gamble seeking more time to pay the $4 billion it owes the Indian government failed in the nation’s top court, leaving the distressed mobile carrier with few options as it weighs its future.
India’s Supreme Court last week rejected a plea by mobile carriers for extended payment schedule and asked them to deposit a combined $13 billion in past dues for spectrum and licenses by March 17. Vodafone Idea, struggling with mounting losses and debt, owes the most among its peers.
In a statement on Feb. 15, the beleaguered operator said it’s assessing the amount it will be able to pay. It also said its ability to continue as a going concern depends on whether the court will modify a previous order that had set Jan. 24 as the deadline for payment.
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British partner, Vodafone Group Plc, has completely written off the value of its 45% holdings in the venture and signaled it isn’t keen to invest more. In December, Chairman Kumar Mangalam Birla warned of a potential collapse in the absence of any relief over the payment.
Here are some options and the challenges they pose:
Deadline Relaxation
Although the top court rejected the wireless carriers’ plea to extend the payment deadline, it warned that the company will have to face contempt proceedings at a March 17 hearing if the payment is not made by then. Vodafone is hoping that it can use this hearing next month to convince the court to relax the timeline. The company said continuing as a going concern will depend on a positive outcome in court.
Rival Bharti Airtel Ltd. on Monday paid 100 billion rupees and said it will pay the rest after a self-assessment but before the next court hearing.
Curative Petition
Vodafone Idea is also left with one last, legal option. A curative petition, like a review petition, is considered by judges in their chambers and is meant to cure a gross failure of judiciary or abuse of judicial process in a verdict.
Reversal of a previous order is extremely rare. The judges have twice rejected all pleas for relief in their October and January rulings. That coupled with the strong reprimand to companies for non-payment on Friday, relief from the court looks unlikely.
Government Relief
Indian government in the past has indicated that it may be open to giving some relief to the struggling wireless carriers. Stripping out interest from the dues or paying the amount in tranches could be some of the alternatives. Any reprieve from the government, however, will come against the backdrop of rising fiscal deficit and need to boost India’s sluggish economy.
Billionaire Bails Out
Birla’s conglomerate has had a presence in India’s brutal telecommunications space for more than two decades, forging partnerships with AT&T Inc. and the Tata group. Over the years it acquired other operators and expanded its network nationwide. Having invested in the business, Birla may decide not to pull the plug at this stage.
If he does step in to save the sinking business, how much would the tycoon be willing to spend? Would he dip into his own fortune estimated by the Bloomberg Billionaires Index at $6 billion?
New Partners or Share Sale
The share price of Vodafone Idea has plunged 96% in the past five years, almost wiping out its equity. The stock last traded at 3.4 rupees (5 cents) in Mumbai. With debt piling up on the balance sheet, raising any form of equity would be very difficult, according to Neerav Dalal, an analyst at Kim Eng Securities Pvt. in Mumbai.
The company raised 250 billion rupees ($3.5 billion) from a rights issue last year to build a war chest and fend off Mukesh Ambani’s Reliance Jio Infocomm Ltd. But the shock $4 billion payment verdict has sent its plans askew. With the falling shares, investors may not find another such issue appealing.
Fundraising
Vodafone Idea is waiting for regulatory nod on the proposed merger of two mobile tower firms -- Indus Towers Ltd. and Bharti Infratel Ltd. -- that will give it a 11.15% stake in the new entity. Selling this stake can bring in funds, but the process is too long to meet a tight deadline on the dues. The company is also exploring options to sell nearly 160,000 kilometers of intra-city and inter-city fiber as well as its data centers. Any rushed asset sale, however, is likely to fetch less.
On the debt side, lenders aren’t exactly lining up at the doors of Vodafone Idea as banks struggle to clean big piles of soured loans from their balance sheets. A telecom carrier, given the brutal tariff war the sector has seen, is least likely to find favor with banks.
Nuclear Option
Birla may well make good his threat of a bankruptcy. A collapse of Vodafone Idea would make it the third bankruptcy of a local mobile carrier in two years following Aircel Ltd. and tycoon Anil Ambani’s Reliance Communications Ltd. It will also be the latest casualty of the intense price war sparked by Jio in 2016. The elimination of Vodafone Idea will leave the world’s second-biggest wireless market with two non-state carriers fighting for the spoils along with two government-run companies.
--With assistance from Vrishti Beniwal and Ragini Saxena.
To contact the reporters on this story: P R Sanjai in Mumbai at psanjai@bloomberg.net;Upmanyu Trivedi in New Delhi at utrivedi2@bloomberg.net
To contact the editors responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net, Bhuma Shrivastava, Jeanette Rodrigues
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