Vodafone Idea (Vi) is unlikely to opt for voluntary bankruptcy as such a move may indicate that the company was to blame for its operational failure and consequent financial crisis, which was not the case, say senior executives of the Aditya Birla Group (ABG).
The executives said the blame lay with the regulatory regime and lack of a ‘level playing field’ which had led to the dire situation that the loss-making telco finds itself in. They added that the fate of the company now lies in the hands of the government.
“The group has put in Herculean efforts to get the business on track. Filing for bankruptcy is not an appealing option considering that it was not a management error that led to the business failure but a lack of level playing field,” said a top group official, who did not want to be named.
Thursday, Vi managing director Ravinder Takkar, in an internal communication to employees, said that even after the resignation of Kumar Mangalam Birla as chairman, the telco would continue to receive “support and guidance” from him and ABG.
Takkar added that employees should continue to focus on customers and winning in the market.
Emails to ABG, UK’s Vodafone Group and Vodafone Idea went unanswered. ABG has a 27.66% stake in Vi while Vodafone has 44.39%.
The loss-making carrier, which was formed in August 2018 by a merger between ABG unit Idea Cellular and UK-based Vodafone Group’s India unit, Vodafone India, faces a potential $3.1 billion (Rs 23,500 crore) shortfall in cash flows in FY23 with its March-end cash balance at Rs350 crore. Its efforts at raising Rs25,000 crore for the last 10 months hasn’t been successful so far.
The criticality of the carrier’s financial situation came to the fore when on June 7, Birla wrote to the government offering to hand over the group’s stake in Vi to any public sector or domestic financial entity who could keep the company afloat. He had also asserted that without immediate government support, the telco would be driven to an irretrievable point of collapse.
The contents of the letter were made public on Monday. On Wednesday, Birla resigned his position as the non-executive chairman and director of Vi, without citing any reasons, and was replaced by Himanshu Kapania.
“The company cannot recover at this stage. Operational profits can’t be made. There are no funds that can be infused further by the Aditya Birla Group or Vodafone Group or investors. Its fate now lies in the hands of the government” said a top group official, who did not want to be named.
“In most countries, governments do step in to save businesses and employment especially where there is no fraud or malpractice that led to the collapse,” the executive quoted above added.
The government has so far not responded to Birla’s letter, with officials privately speaking about difficulties of accepting the proposal. However, the Centre is working to speedily announce a relief package for the sector, which would also benefit Vi. The package could include allowing surrender of spectrum, reduction of bank guarantees, phasing out or reducing levies such as licence fees and spectrum usage charges and prospectively redefining adjusted gross revenue (AGR) to exclude non-telecom items.
The shares of the telco hit another 52-week low on Thursday but recovered during the day to end at Rs 5.94, down by 1.49% on the BSE on Thursday.
The position of cash-strapped telco has worried its lenders, vendors and employees. Recruiters ET spoke to said they have been flooded with resumes of employees who want to make swift exits from the telco.
To calm employees, Vi MD Takkar sent out an internal communication to 9500-odd employees.
“Even as Mr Birla steps down from the board, he and the Aditya Birla Group will continue to provide support and guidance to the company, in line with the stated position of the group. We will therefore continue to get benefit of his experience and support,” said Takkar.
He also detailed out the changes in the Board posts that took place on Wednesday. “I would urge all of you to continue to remain focused on providing quality service to our customers, sustain intensity in the market to win and deliver our goals”, he added.
ET has seen the communication.
The mobile phone operator was pushed to the brink after the Supreme Court ruled in September 2019 to widen the definition of AGR to include non-telecom items and left Vi with a statutory bill of over Rs58,000 crore. It has paid Rs7854 crore so far, and all its attempts to reduce the AGR bill by legal means has come to nought.
Its debt ballooned to Rs1.8 lakh crore in the January-March quarter as it borrowed to buy spectrum and invest in its network, at a time revenue was falling sharply, leading to dwindling cash flows and heavy losses. Vi has never reported a quarterly profit since the merger. Its net loss in the January-March quarter was Rs 6,985.1 crore.