BackGovt equity in Voda Idea could rise to 88% after FY26 if telco doesn’t make annual payments: CLSA
After the moratorium, from FY26 for spectrum and AGR payments, Vodafone Idea will need to pay Rs390bn/US$4.9bn annually - 3.5x FY22 cashflow
PremiumNEW DELHI : Indian government could well own about 88% stake in Vodafone Idea after FY2026 if the No 3 carrier is unable to make the annual payments of about $5 billion, research firm CLSA said in a note, cautioning about the scenario if the government opts to convert the outstanding debt into equity.
Vodafone Idea opted for a four-year moratorium on payment of spectrum dues in September last year and earlier this year it opted to convert the interest on the moratorium – amounting to ₹16,000 crore - into equity to be owned by the government, which is about 33%. The government is yet to complete the conversion into equity even as approvals have been given by finance ministry two months ago.
“After the moratorium, from FY26 for spectrum and AGR payments, Vodafone Idea will need to pay Rs390bn/US$4.9bn annually - 3.5x FY22 cashflow. The government's ownership of Vodafone Idea could reach 88% if the company cannot make these annual payments and the government chooses to convert the debt to equity," the firm cautioned.
“It remains uncertain whether the government's ownership will be in the interest of minority shareholders," it said, adding concerns of the carrier’s weaker market share and uncertainties with regards to its planned ₹25,000 crore fundraising.
The financial constraints will also impact the carrier’s ability to rollout 5G network which has been behind peers Bharti Airtel and Reliance Jio which intend to launch services as early as this month, as the telco is yet to secure fresh bank loans and finalise gear procurement contracts with suppliers.
CLSA said that as peers roll out 5G services, its low capex will exacerbate market share pressure. “Fundraising delays and US$25bn government debt despite a four-year moratorium add multiple risks to its 5G rollout plans."
“We are in discussions with various vendors for 5G (gear) procurements, and also with banks for funding arrangements….once these two things are in place, we will take actions for deployment of 5G," Vodafone Idea’s chief executive officer Akshaya Moondra said at the 27th annual general meeting of the carrier last month.
The Aditya Birla Group backed carrier has government debt burden of ₹1.98 trillion or US $25 billion which includes 5G auction spends and excludes lease liabilities. Of its FY22 debt which excludes 5G spends, 59% is for spectrum liabilities, 34% is for adjusted gross revenue and while bank debt is only ₹15,200 crore or US$ 1.9 billion.
“The crux of Vodafone Idea’s debt issues lies the spectrum burden (11-77% higher than RJio and Bharti) on its balance sheet," the firm said. The carrier’s aggregate AGR liabilities burden at US$8bn is higher than Bharti’s US$4bn.
CLSA said that AGR relief of US $5-6 billion was crucial for Vodafone Idea, even as the Supreme Court hearing on the correction of computational errors in AGR was awaited. Vodafone Idea had self-assessed AGR dues at Rs21,500 crore or US $2.7 billion against the preliminary department of telecom estimate of ₹58,300 billion or US $7.4 billion, and has paid ₹7,900 crore or US $1 billion thus far.
“While there is a moratorium on payments, AGR relief is especially crucial for Vodafone Idea. Incumbents are also awaiting DoT’s final AGR dues demands," CLSA said.
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