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

Industrialist Kumar Mangalam Birla has expressed willingness to offer his group’s 27 per cent stake in Vodafone Idea Limited (VIL) to any government or domestic financial entity in order to keep the stressed telecom company alive.

The Aditya Birla Group chairman and promoter of VIL made the suggestion in a letter to Union Cabinet Secretary Rajiv Gauba on June 7. The VIL debt has more than trebled in the last four years to Rs 1.6 trillion as of end of March 2021, from around Rs 37,000 crore in FY16. This includes deferred spectrum obligations and adjusted gross revenue (AGR) liabilities.

Birla made the suggestion to give up his control of the company more than a month before the Supreme Court dismissed the company's application for recalculation of the AGR dues, highlighting the need for urgent measures from the government.

“It is with a sense of duty towards 27 crore (270 million) Indians connected by VIL, I am more than willing to hand over my stake in the company to any entity-public sector/government/domestic financial entity or any other that the government may consider worthy of keeping the company as a going concern,” Birla said in his letter.

The VIL board had last September announced a plan to raise Rs 25,000 crore but investors have not been forthcoming in the absence of government support.

The fundraising is, however, tough given VIL’s negative net worth and consistent losses. The company has cumulatively lost Rs 1.37 trillion in the last five years. As a result, its net worth declined from around Rs  24,000 crore in FY16 to negative Rs 38,000 crore in FY21.

While Vodafone Plc has refused to throw good money after bad or make additional equity investment in VIL, AB Birla Group’s hands are also tied given the mismatch between the capital requirement and group finances.

In FY21, the group listed companies (ex-VIL) reported net profit of Rs 7,132 crore against VIL’s net loss of around Rs 44,200 crore. In the last five years, AV Birla group companies cumulatively earned net profits of Rs 37,600 crore--a fraction of VIL’s cumulative loss of Rs 1.37 trillion since FY16.

On the balance sheet side, VIL's cumulative reserves & surplus of negative Rs 67,000 crore are equivalent to nearly half of the combined net worth of the group’s other listed companies. 

Analysts say that VIL losses could potentially swamp the group finances making Birla wary of making additional investments in the company. They say it’s better for the group to cut its losses in VIL and redirect group capital and resources to profitable businesses such as cement, metals, financial services, fashion and retail.

VIL had last raised Rs 25,000 crore worth of equity from its shareholders including promoters through a rights issue in April 2019. The company was left with cash & bank balance of only around Rs 2,200 crore at the end of March this year.

Birlas’ foray into telecom dates back to 1995--incidentally the same year when Kumar Mangalam took the reins of the company following his father’s death. Idea Cellular was introduced in 2002 and in 2017 it merged with Vodafone in a $23-billion deal. The merger was completed in August 2018.

The Birlas own over 27 per cent stake in VIL while Vodafone Plc holds more than 44 per cent in the company. At the time of the merger, the company stock was trading at Rs 34, it closed at Rs 8.25 on the BSE on Monday. The current market capitalisation of VIL is at more than Rs 23,000 crore.

While the two promoters have decided against infusing fresh funds in the company, Vodafone Plc has already written off all its investment in VIL following continuous losses.

“To actively participate in the fund raising, the 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, adequate moratorium on spectrum payments and most importantly, a floor pricing regime above the cost of service. In the absence of definitive steps in this regard, the potential investors have understandable hesitation to invest,” Birla wrote in his June communication.

Birla further said that VIL’s financial situation would drive its operations to an irretrievable point of collapse without immediate active support from the government on these three issues.

On June 25, VIL had approached the Department of Telecommunications to seek a one-year moratorium on Rs 8,200-crore spectrum instalment which is due in April 2022. In its letter, the company said it would be unable to pay the spectrum dues because of inadequate cash generation and payment of AGR liabilities.

On July 23, the Supreme Court dismissed the petitions of VIL and Bharti Airtel seeking correction in claimed errors in calculating the AGR. VIL had calculated its remaining AGR dues at around Rs 21,500 crore after making a payment of Rs 7,800 crore. However, DoT concluded the company’s total AGR liability was around Rs 58,000 crore.