Vodafone India Poised to Avert Bankruptcy After Court Order
Vodafone Group Plc’s India unit is no longer considering bankruptcy, according to people with knowledge of the matter.
(Bloomberg) -- Vodafone Group Plc’s India unit is no longer considering bankruptcy, according to people with knowledge of the matter, after winning some legal relief in a near two-decade payment dispute with the government.
The fine print of a Supreme Court judgment published late Tuesday showed Vodafone Idea Ltd. doesn’t need to make any immediate payments as a three-judge panel allowed phone operators 10 years to pay a combined $19 billion in back fees. In what’s being interpreted as a show of strength, Vodafone Idea’s board soon after said it would meet to discuss a fundraising.
The company’s shares closed 12% higher in Mumbai on Wednesday, almost recouping the previous day’s loss.
This week’s events are bolstering expectation that the teetering wireless carrier is looking for another shot at success in the world’s fastest-growing telecom market. The joint venture between Vodafone and billionaire Kumar Mangalam Birla’s conglomerate has been weighed down by a $7.8 billion bill from the government -- biggest among peers -- eight straight quarterly losses and over $14 billion of debt.
“A staggered payment regime provides some relief,” said Utkarsh Sinha, managing director at consultancy Bexley Advisors. “It gives Vodafone Idea the breathing room it needs to continue.”
Birla warned in December that the company was headed toward insolvency if there was no help from policy makers.
Vodafone Idea’s next payout is due in 2022, given it has already paid about $1 billion that satisfies the court’s demand of a 10% payment by March 2021, according to a person familiar. Rival Bharti Airtel Ltd., which has already raised enough cash to settle dues, has a $5.9 billion bill. Of that, it has already paid about $2.5 billion.
Telecom companies can seek a review petition of the court ruling -- an option Vodafone Idea and Bharti Airtel are exploring, according to people familiar with the internal discussions.
| Fine Print |
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Source: Supreme Court’s Sept. 1 order |
Representatives for Vodafone Idea declined to comment on their plans to file a review petition or the averted bankruptcy. Bharti Airtel too declined to comment.
Although the court rejected a suggestion for a 20-year payment plan, the ruling still comes as a relief for carriers already crushed by mounting debt and a crippling price war sparked by the debut of billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd. in 2016.
Disruptive Entrant
As Ambani’s disruptive entrant lured almost 400 million users in about four years with free calls and cheap data, rivals struggled. Many incumbents exited the market, merged or filed for bankruptcy such as Aircel Ltd. and Reliance Communications Ltd.
Vodafone Idea, which said its net worth has turned negative, is one of just three non-state wireless carriers left, implying its survival is essential to avoid a duopoly in the Indian telecom sector.
It now needs to work on a turnaround plan and amass funds for providing the 5G services in the future, according to Arun Kejriwal, director at KRIS, an investment advisory firm in Mumbai.
While Bharti Airtel, controlled by billionaire Sunil Mittal, managed to raise funds by way of rights issue of shares and bond sales, Vodafone Idea had pinned its hopes on a relief package.
London-based parent Vodafone, which owns about 45% of the local venture, had signaled its unwillingness to invest any more money into its India unit.
Reluctance Tested
“Vodafone’s reluctance to plough money into its Indian joint venture may be tested” after the court gave it a lifeline to stagger payments, Erhan Gurses, analyst with Bloomberg Intelligence wrote in a note on Wednesday. “Yet, an excessive debt burden, looming 5G investment and operational underperformance means the unit will continue to drain money.”
The three rivals have already decided to end a years-long tariff war and started increasing prices late last year, helping Vodafone Idea and Bharti Airtel on a path to recovery.
The challenge for Vodafone Idea now is to reclaim customers lost to Reliance Jio Infocomm and bolster its finances. Vodafone Idea’s board meets Friday where it plans to discuss ways to raise money.
“This verdict may have averted an immediate bankruptcy but the company still has to sort out the larger issues,” Kejriwal said. “The controlling shareholders now have to present a long-term plan for the carrier.”
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