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It seems to be end of the road for Voda Idea: Sandeep Parekh – Economic Times

From my perspective, it seems like the end of the road and they will probably have to file for winding up at some stage, says Sandeep Parekh, Managing Partner, Finsec Law Advisers.

Kumar Mangalam Birla is stepping down from the

board as a Director. Is it a sign of what is to come for Vodafone Idea and how tough is it for telecom players to operate in such an environment?
They are facing challenges with respect to payments for spectrum and there is increased competition because of Jio. I do not think the future is uncertain. It is looking pretty certain in terms of the large payments which have to be made for spectrum use of past years. Unless they can hugely capitalise and then compete which looks quite difficult given the kind of numbers involved and the fact that they are not able to get the right kind of equity investments to scale up that size. Things look dismal for the time being and globally also, most telecom circles typically end up as duopolies. It is almost a natural state of play for telecom operators. The next step for Birla seems to be to completely write-off their investments in the joint venture.

What can Kumar Mangalam Birla stepping down mean — approaching NCLT and winding up, selling out to another investor, Vodafone PLC taking a bigger stake?

Neither of the two current promoters appear interested in capitalising the entity but nobody would want to invest such an overwhelming amount of money. I really do not see a choice. Even if a white knight comes, he will want return on capital and unless they get such an overwhelming dose of not just capital but of optimism, I do not think they are going to. With the existing shareholders exiting or writing down their investments, I really do not see that happening. From my perspective, it seems like the end of the road and they will probably have to file for winding up at some stage.

Given the fact that it could be the end of the road for Vodafone Idea, let us take a look at some of the banks that have big exposure to Vodafone, for example , PNB, SBI and . Do you think the going will get tough for the Indian banking system as well?
I really do not want to comment on banks’ exposure but there could be substantial write-downs for all the lenders to this entity. It seems to be a natural corollary.

If that were to take place, would not competition now be a big challenge?
I am not even getting into that question. My point is telecom and airlines are very different industries. In fact, telecom is quite different from most of the industries in the sense that in an airline, you can write off part of the debt, you can write off the equity completely and instead of 100 airplanes, can restart with five. That is not possible for telecom. You cannot have a shrunk Vodafone which will continue to exist. So, I do not see why either of the competitors would buy a company with such massive debts. I really do not see much scope for white knight.