AGR dues: After SC denies relief, is it the end of road for Vodafone Idea?

There was gloom at the headquarters of Vodafone Idea in Mumbai on Friday, with top executives saying the company would not be able to take the additional Rs 54,000-crore hit and it would now end up in bankruptcy court.

“It would be difficult for the company to survive after this judgment,” said a Vodafone executive. 

Vodafone Idea’s net worth (or shareholders’ equity) was down 73 per cent year-on-year to around Rs 17,600 crore at the end of the December 2019 quarter after the company reported a net loss of around Rs 6,400 crore during the quarter. Cumulatively, the company has lost nearly Rs 45,000 crore in the last four quarters, eroding its net worth to its lowest level in three-year.

Analysts said a such a low level of net worth, coupled with continuing losses in operations, ruled out the possibility of the company getting fresh loans from lenders to fund its adjusted gross revenue (AGR) dues. 

“On what basis will banks give fresh loans to the company? The company is running out of assets to back fresh borrowing,” an analyst said. 

After its third-quarter results, Vodafone Idea’s long-term debt-to-equity ratio shot up to 5.7x, making it one the most indebted companies in the country. 

In comparison, its leverage ratio was 1.3x at the end of the March 2019 quarter. The ratio worsened to 6.6x at the end of December 2019 if the current maturities of its long-term debt were to be taken into account.

The company has to repay long-term debts worth Rs 14,800 crore by the end of FY20, according to its filing for Q3FY20.

Not surprisingly, many analysts are expecting the company to file for bankruptcy once its net worth turns negative in the next few quarters.

Vodafone Idea’s poor financial performance also led to a sharp decline in its market capitalisation in the past one year, making it tough for the company to raise fresh equity in the way Bharti Airtel did a few weeks ago.

At its current share price, Vodafone Idea has a market capitalisation of around Rs 10,000 crore, which is a fraction of its impending liabilities and lowest since its listing in 2007 as Idea Cellular. 

The company had a market capitalisation of around Rs 22,000 crore at the time of its listing in March that year.  Analysts said the company needed a large equity infusion from its promoters — Aditya Birla group and Vodafone plc — to stay solvent and pay its AGR dues.  

The promoters have decided not to put in more cash into the company after both lost a sizeable amount by investing in the company’s Rs 25,000-crore rights issue last year.

Vodafone plc owns 44.39 per cent in Vodafone Idea while the Aditya Birla group has 27.18 per cent.

As the Aditya Birla group has not given any corporate guarantees on loans worth Rs 1.15 trillion, there will not be any negative impact on the group companies and their losses be limited to the equity stake in the company, said an analyst.

VIL had made a provision of Rs 44,150 crore (Rs 27,610 crore for licence fees and Rs 16,540 crore towards spectrum usage charges) till the quarter ended September 30, 2019, for the disputed liabilities towards AGR. The existing liquidity (about Rs 15,390 crore as of September 30, 2019) will be insufficient if there is a payout of licence fee liabilities of Rs 27,610 crore.

Nick Read, chief executive officer of Vodafone plc, warned in November last year Vodafone Idea faced an imminent collapse after the Supreme Court judgment on October 24, which asked the companies to pay the dues within three months. The deadline expired in January this year.

This raises the possibility of Vodafone exiting India if Vodafone Idea is forced to suspend operations due to financial difficulty. In the past Vodafone plc has exited around eight markets. But those exits have been largely due to commercial reasons and the company made money in most of these exits. 

For example, Vodafone plc exited its US joint venture Verizon Wireless for a consideration of nearly $130 billion while it sold its stake in an Egyptian joint venture for nearly $2.4 billion.