Birla tells govt he is willing to give up promoter stake in Vodafone Idea

Manjil Das, INN/Chennai
Twitter-@SGiggle29 @Infodeaofficial

Kumar Mangalam Birla, an industrialist, has shown a willingness to sell his group’s 27% share in Vodafone Idea Limited (VIL) to any government or domestic financial body to save the struggling telecom business.

On June 7, the chairman of the Aditya Birla Group and the promoter of VIL made the recommendation in a letter to Union Cabinet Secretary Rajiv Gauba. VIL debt has more than tripled in the last four years, reaching Rs 1.6 trillion as of March 31, 2021, up from about Rs 37,000 crore in FY16. This covers delayed spectrum commitments as well as liabilities for adjusted gross revenue (AGR).

It was more than a month before Birla suggested giving up control of his firm, underscoring the need for quick action from the government.

‘I am more than prepared to hand over my interest in VIL to any entity-public sector/government/domestic financial firm or any other organisation that the government may deem worthy of preserving the business as a going concern,’ Birla said in his letter to the government.’

A proposal to fund Rs 25,000 crore had been revealed by VIL’s board of directors in September, but investors have been reluctant to come forward in the absence of government backing.

VIL’s negative net worth and continuous losses make it difficult to raise money. Since 2005, the firm has suffered a cumulative loss of Rs. 1,37 trillion (US $1.37 trillion). The net worth fell from about Rs 24,000 crore in FY16 to a negative Rs 38,000 crore in FY21 because of these factors.

The AB Birla Group’s hands are further limited by the mismatch between capital requirements and group funds, since Vodafone Plc has refused to throw good money after bad by investing more in VIL.

Group listed firms (ex-VIL) recorded a net profit of Rs 7,132 crore in FY21, compared to a net loss of roughly Rs44,200 crore for VIL during the same period. As of FY16, the combined net earnings of AV Birla group firms were Rs 37,600 crore, a fraction of VIL’s overall loss of Rs 1,37 trillion during FY16.

As a result of VIL’s cumulative reserves and surplus of negative Rs 67,000 crore, its net value is over half that of the group’s other listed firms combined.

Citing analysts, Birla is apprehensive about making more investments in VIL since the losses might overwhelm the group’s resources. They argue that it would be preferable for the group to cut its losses in VIL and transfer cash and resources to successful industries such as cement, metals, financial services, fashion, and retailing instead of continuing to lose money.

It collected Rs25,000 crore from its stockholders, including promoters, in April 2019 through a rights offering. Only about Rs 2,200 crore in cash and bank accounts was left at the end of March this year.

As a matter of fact, Birlas’ entry into the telecom industry dates back to 1995, the same year that Kumar Mangalam took over the firm after his father’s death. As of 2017, Idea Cellular had merged with Vodafone for $23 billion. As of August 2018, the merger was finalised.

More than 27 per cent of VIL is owned by the Birlas, while more than 44 per cent is owned by Vodafone Plc. The BSE ended Monday at Rs 8.25, down from Rs 34 around the time of the merger. VIL has a current market capitalization of more than Rs 23,000 crores, according to Bloomberg.

After years of losses, Vodafone Plc has already written off its entire investment in VIL, while the company’s two promoters have opted against injecting further cash into it.

Potential foreign investors want to see clear government intent to have a three-player telecom market (consistent with its public stance) through positive actions on long-standing requests such as clarity on AGR liability, an adequate moratorium on spectrum payments, and, most importantly, a floor pricing regime above the cost of service to actively participate in fund raising. Potential investors are understandably hesitant to invest in the absence of clear actions in this regard, “Birka said in his June message.

The VIL’s financial position, Birla said, would push its operations to an irreversible point of failure if the government did not provide prompt active help on these three concerns.

An application for a one-year moratorium was filed by VIL on June 25 with the Department of Telecommunications, which is scheduled to be paid in April 2022. This is due to insufficient cash generation and AGR obligations, the business claimed in its letter.

According to VIL and Bharti Airtel, the AGR was calculated incorrectly. The Supreme Court rejected their applications on July 23. After completing a payment of Rs 7,800 crore, VIL estimated its remaining AGR dues at about Rs 21,500 crore. The DoT, on the other hand, determined that the company’s overall AGR obligation was about Rs 58,000 crore.

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