Telecom operator Vodafone Idea Ltd (VIL) is the eye of the storm, yet again, this time following the resignation of industrialist and billionaire Kumar Mangalam Birla from the debt-laden company’s board.
On Wednesday, Birla, the chairman of business conglomerate Aditya Birla Group, had stepped down as non-executive chairman and non-executive director of VIL, a move that did not go well with the investors. While the company named non-executive director and telecom veteran
Himanshu Kapania as non-executive chairman, the markets read it as a signal that the businessman was distancing himself from the beleaguered mobile service provider.
This resulted in its shares plunging by 24.54 per cent to its 52-week-low of Rs 4.55 during early trading on the BSE. Later, the shares closed down 1.49 per cent at Rs 5.94 on the main BSE bourse on Thursday.
The recent troubles for VIL, which is weighed down by debt of Rs 1.8-lakh-crore debt, started with a series of events, and Birla’s resignation is the latest one in the chain.
Earlier on June 7, 2021, Birla had offered to hand over Aditya Birla Group’s entire stake in the company to any public sector or domestic financial entity to keep the firm afloat. In case of government declining support, the company’s operations would be driven to “an irretrievable point of collapse”, Birla said in a letter.
This evokes a sense of deja vu.
Earlier in 2019, there were reports that the beleaguered airline Jet Airways had also sought for a similar bailout, but the government turned Nelson’s eye. However, there were promises of providing bank funding for the embattled carrier, which also didn’t materialise.
Birla had taken over as non-executive chairman of Vodafone Idea in August 2018 after the company he helmed – Vodafone India – entered into a $23-billion merger deal with Idea Cellular.
The non-executive chairman’s resignation came immediately after UK-based Vodafone Group Plc’s Chief Executive Officer Nick Read reiterated the parent company’s stance of not infusing further capital in VIL, which now operates under the brand name ‘Vi’. It was during an analyst call Read stated that the Indian operator is passing through a difficult time, but the parent would not infuse any additional equity.
Vodafone Group holds a 44.39% stake and Aditya Birla Group a 27.66% stake in the merged entity, VIL, and the remaining is held by institutional investors (foreign and domestic) and the general public.
Troubles were brewing for the operator after it failed to raise funds, secure reliefs from the government and the Supreme Court ruling against its application for re-computation of adjusted gross revenues. The company owes about $6.74 billion over the next 10 years to the government for spectrum usage and licence fees, and a re-calculation of those dues were not permitted by the apex court.
Helping Hand Need
According to media reports, investors in VIL are ready to part with their stake in VIL to bankers or to state-owned telecom operator Bharat Sanchar Nigam Ltd (BSNL) for free. In case of a merger with BSNL, the company’s dues would be put on hold as it the merged company would become a government entity, and in case if the stake is taken over by lenders, they would have to further infuse money to keep the company afloat.
While such a proposal is yet to reach BSNL or its parent, the Department of Telecommunications (DoT), a bailout package is the need of the hour to save the firm and its nearly 10,000 employees. Further, it is also required to ward off the evils of duopoly (with two private operators remaining - Reliance Jio Infocomm and Bharti Airtel - in case of VIL downing shutters) that could lead to a cartelisation, which could, in turn, derail India’s telecom revolution.