Vodafone Idea looks set to miss a payment deadline set by the Indian government, which could jeopardise its future in the country.
In 2018, Vodafone India merged with Idea Cellular in a deal worth $23bn, creating India’s second-largest telecoms company by subscribers.
In the two years since the merger, the joint telecoms business has run into a number of problems, which last year resulted in the company selling $3.6bn worth of shares at a discount of approximately 60pc. Last year, its CEO Balesh Sharma resigned, handing the reigns over to ex-CEO of Vodafone Romania, Ravinder Takkar.
Then, in November 2019, Vodafone’s Indian business lost a long-running court battle with authorities, which left the company on the hook for as much as €3.7bn in retrospective fees, interest and fines.
The decade-long battle focused on how telecoms businesses in India calculate certain revenues, which are used to calculate regulatory fees. This left Vodafone Idea as well as its competitors Bharti Airtel and Jio owing the Indian government significant sums of money.
Considering an exit from India
This news had an adverse effect on the balance sheet of Vodafone Idea, with India Today speculating that the ruling would “effectively wipe out whatever value the company has put on its Vodafone Idea joint venture”.
The company asked for a two-year extension to pay back the money that was owed to the Indian government, with Vodafone’s global chief exec, Nick Read, describing the situation as “critical”.
“It’s been a very challenging situation for a long time and, if you look at the share price in India, it effectively has zero value,” Read said at the time, suggesting that Vodafone could pull out of the Indian market altogether.
Missing the payment deadline
Vodafone Idea has now racked up adjusted gross revenues (AGR) debt of $743.5m with the Indian government, which was due to be paid by 24 January.
According to India’s Deccan Herald, the company has informed the country’s department of telecommunications that it will not be able to meet the original deadline.
In December 2019, Vodafone Idea chair Kumar Mangalam Birla warned that the company would shut down if it did not receive relief from the fees.
“If we are not getting anything [from the authorities], then I think it is the end of story for Vodafone Idea. It does not make sense to put good money after bad. We will shut shop. The big elephant in the room is AGR,” he said.
Meanwhile, The Economic Times has seen a Deutsche Bank note that said: “The government will find it too expensive to provide a large enough fix needed to prop up Vodafone Idea for anything other than the medium term. “