The government is likely to announce a rescue package as part of its efforts to provide some breathing room to the troubled telecom sector, particularly to cash-strapped Vodafone Idea, which is on the verge of going bankrupt.
While the government has not specified a precise date for the announcement of the telecom relief package, numerous officials have acknowledged that work is underway to offer assistance to all strained telecom businesses, particularly Vodafone Idea Limited (VIL).
Vodafone Idea Crisis
While the government is putting together a relief package for the telecom sector, it is looking to the Vodafone Idea’s promoters [the Vodafone Group Plc and the Aditya Birla Group (ABG)] to demonstrate their commitment to the industry by infusing capital into the company, according to The Economic Times.
According to the article, authorities from the Department of Telecommunications (DoT) want to contact the promoters of the struggling telco to better understand the potential course of action and if the supporters are dedicated to rescuing the strained telco from bankruptcy. This is due to the government’s desire to avoid a situation in which VIL falls bankrupt, notwithstanding the government’s assistance package.
According to a senior government official quoted in the magazine, all efforts are being made to establish a three-player telecom market in the future. However, the official stated that the two promoters must invest cash into the firm and develop a strategy for the next few years to ensure long-term success.
Vodafone Idea’s present financial condition does not appear to be favorable, as the company’s first-quarter loss increased to Rs 7,319 crore from Rs 6,985 crore in the previous quarter.
On the contrary, Vodafone Idea’s overall debt has grown to Rs 1.92 lakh crore, increasing from Rs 1.90 lakh crore previously. The corporation has also suffered a considerable loss of revenue from its telecommunications sector due to the pandemic. It will require new investments to recover from the existing condition and pay back past-due amounts.
To make matters worse, the business has been unable to obtain Rs 25,000 crore nearly a year after its board of directors authorized fundraising plans.
Many analysts who follow the firm predict that Vodafone Idea would not be able to pay its next installment of adjusted gross revenue (AGR) dues of Rs 9,000 crore and an extra debt payment over Rs 16,300 crore, soon. These installments are payable within the following 12 months of receiving the invoice.
Promoters are not excited about Capital Infusion
Vodafone Group CEO Nick Read has previously stated that the firm will not inject any further cash into the company’s loss-making Indian telecommunications joint venture with ABG, which is now in the red.
ABG Chairman Kumar Mangalam Birla recently resigned from his position as non-executive chairman of VIL after sending a letter of complaint to the government. In the meantime, According to Birla’s letter, any government agency that can save Vodafone Idea from bankruptcy would be given his 27.6 percent ownership interest in the firm.
It appears that both promoters have made up their minds and will not be injecting any further cash into the joint venture telecommunications firms in the foreseeable future.
Consequently, the government believes that a rescue package may not be sufficient to preserve Vodafone Idea. According to the source mentioned in the ET story, calculations have revealed that the government’s assistance will not be adequate to allow the loss-making telecom to continue.