Bank guarantees discussed in the meeting as telco struggles for survival
A bankruptcy will impact Vodafone Idea’s subscribers and staff, and add to stressed assets on the books of lenders
New Delhi: Vodafone Idea Ltd chairman Kumar Mangalam Birla met telecom secretary Anshu Prakash on Tuesday amid fears that the government may invoke the company’s bank guarantees, a move that may threaten the very survival of India’s second-largest telecom operator.
“Bank guarantees were discussed in the meeting," a person aware of the matter said, requesting anonymity. Birla, however, declined to disclose the issues that were discussed in the meeting with Prakash.
Birla’s meeting with top government officials indicate that the billionaire chairman of the Aditya Birla Group is actively involved in efforts to save Vodafone Idea, which has 304 million subscribers and about 13,000 direct employees. Apart from the impact on subscribers and employees, a potential bankruptcy will add to the pile of stressed assets on banks’ books.
Till recently India’s largest telco by users, Vodafone Idea is the worst hit by a top court verdict directing it to pay ₹50,000 crore in past licence fees and spectrum usage dues by 23 January.
Last-ditch efforts by the company to get a court reprieve on Monday failed, prompting speculation that the government will encash its bank guarantees. Vodafone Idea’s oral plea in the Supreme Court seeking directions to the telecom department not to pursue coercive steps for recovery of dues was not entertained.
The court on 14 February pulled up telecom operators and officials of the department of telecommunications (DoT) for failing to comply with the 24 October verdict that upheld the government’s definition of adjusted gross revenue on which licence fee and other levies are calculated.
Hours after the court’s observations, DoT raised demand for the dues and said “necessary action will be taken in terms of the provisions of the licence agreement without any further notice" if dues were not paid immediately.
“The DoT is currently awaiting legal opinion on whether it can resort to invoking bank guarantees," the person cited earlier said. Solicitor general Tushar Mehta did not answer Mint’s calls or messages.
Vodafone Idea and DoT did not respond to Mint’s query.
Analysts said the outlook for the company remains critical and a potential closure will have a ripple effect on the economy.
“For the Indian banking sector, Vodafone Idea potentially shutting down creates a $16 billion concern for banks, with roughly $3.5 billion in funded exposure and $12.5 billion in spectrum guarantees," BofA Securities said in a note dated 17 February.
“While almost all players are likely to have exposure, smaller private and PSU banks would likely take a disproportionate hit on their P&L (profit and loss statement) and capital,"the brokerage said. “In our coverage IndusInd, Yes Bank and to some extent SBI would likely have bigger impacts in this scenario. At this stage, banks could still hope for either a potential government and/or promoter rescue of Vodafone or the government not invoking guarantees."