Vodafone Idea investors unwilling to invest, seeks moratorium to clear dues

moratorium Vodafone Idea
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Vodafone Idea has sought a year of moratorium to clear dues related to the recently purchased spectrum due to its bad financial health and informed the government that its investors are unwilling to infuse money unless tariffs rise and the health of the industry improves. 

The ailing telco, a joint venture between the UK’s Vodafone Group and India’s Aditya Birla group’s Idea Cellular, said it is not generating enough money from its daily operations to pay Rs 8,292 crore ($1.12 billion) towards the spectrum payment.

“…we request you to please grant us another year of moratorium to pay this instalment in April, ’23, instead of April, ’22. We are making this request well in advance considering the fact that it is almost inevitable that we will not be able to pay this in Apr, ’22 and DoT will need some time for processing this request internally,” Vodafone Idea said in the letter to the Department of Telecommunications (DoT)  secretary, Anshu Prakash.

Vodafone Idea needs to pay Rs 7,854 crore ($1.06 billion) towards the adjusted gross revenue (AGR) upfront payment along with the first instalment of Rs 9,000 crore ($1.22 billion) towards previous AGR dues, as mandated by the Supreme Court, in March 2022. Hence it won’t have money to clear spectrum-purchase related dues, which need to be cleared on April 9, 2020, the telecom operator said in its letter.

“..the cash being used for payment of AGR dues and the inability of the operations to generate the required cash in a predatory pricing situation, we find that we will be unable to pay the instalment of Rs8,292 crore due on April 9, 2022. Hence, we request you to please grant us another year of moratorium to pay this instalment in April ’23, instead of April ’22,” it added.

In April this year, Vodafone Idea had received a show-cause notice from the DoT for non-payment of the licence fee for the last quarter of the last financial year.

The telecom operator’s net loss widened to Rs 6985.1 crore ($943.92 million)  in the fiscal fourth quarter, and revenue fell to Rs 9,607.6 crore ($1.3 billion) from Rs 10,894.1 crore ($1.47 billion) in the October-December period.

The company said that it is currently in active discussion with potential investors to raise $2-2.5 billion. 

The telco recently raised prices of postpaid plans to strengthen its finances. However, it hasn’t been able to increase tariffs for prepaid services due to competitive pressure in the market, stopping it from meeting larger payment obligations.

“We are working on raising new funding for the last six months, but the investors are not willing to invest in the company because they believe that unless there is a significant improvement in the consumer tariffs, the health of the industry will not recover, and they will incur a loss on their investment,” the telco said in its letter.

Brokerage CLSA, in its note on Thursday, said that Vodafone Idea with $24 billion in debt, of which 88% is for spectrum and AGR, is headed for a financial crisis in FY23 when annual payments towards spectrum and AGR become due.

Credit Suisse separately said that the telco’s cash generation is inadequate with cash balance remaining “precariously low” theory. It requires a meaningful capital infusion on an urgent basis to break out of the vicious loop of under-investment and market share loss.

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