The Vodafone Idea stock has been under pressure after Birla offered to hand over his stake in the company to the government or 'any other entity that the government may consider worthy to keep the company operational'
The Vodafone Idea stock tanked around 17% on the NSE on Thursday after the cash-strapped telecom operator's board accepted Kumar Mangalam Birla's request to step down as non-executive chairman and non-executive director.
The stock has been under pressure after Birla offered to hand over his stake in the company to the government or "any other entity that the government may consider worthy to keep the company operational." The stock has slumped 40% in the last three trading sessions. On the other hand, the share of competitor Bharti Airtel, rose around 7% intraday to ₹614, inching closer to its 52-week high of ₹623.
"Vodafone Idea has tried all kinds of options to survive, but so far nothing has worked out to relieve them of their financial distress. It is just a matter of time before they file for bankruptcy at the NCLT, unless a white knight emerges, which is very unlikely. We don't see any bidders at the enterprise level, who would want to buy their entire business, but there could be some interest in their assets such as fibre optics," said an analyst with a domestic brokerage house requesting anonymity.
Media reports state that in his letter to the government in June, Birla said that investors were not willing to invest in the company in the absence of clarity on AGR liability, an adequate moratorium on spectrum payments and most importantly floor pricing regime above the cost of service.
Investors would reckon that last month, the Supreme Court of India had rejected pleas by telecom companies, including Vodafone Idea and Bharti Airtel, which alleged errors in calculation of adjusted gross revenue (AGR) related dues payable by them. Vodafone Idea owes over Rs58,000 crore of AGR dues.
In the light of the latest developments at Vodafone Idea, sector analysts see the telecom industry finally heading towards duopoly. "With Vodafone's exit, the only two remaining firms Airtel and Jio would benefit with a likely increase in their subscribers base," he added. As of May 31, Vodafone had 277.6 million wireless subscribers, showed the latest data by Telecom Regulatory Authority of India.
Vodafone Idea has been trying to raise funds and looking for a white knight, but the news that it is willing to give its stake for free, indicates that they have not made any inroads yet. According to a report by Business Standard, Vodafone Plc has also offered its stake for free to lenders and public sector telecom company BSNL. Since the two main promoters seem to have given up hope, it is but natural that filing for bankruptcy is the next logical step.
Of course, if the government makes significant changes in telecom policy, it is possible that investors may be interested in infusing funds and a bankruptcy filing can be avoided.