A deal with Google is not the only lifeline Vodafone Idea is betting on

Kumar Mangalam Birla, Chairman, Aditya Birla Group and Idea Cellular Limited, and Mr. Vittorio Colao, CEO, Vodafone Group Plc at the Idea Vodafone merger press conference in MumbaiBCCL
  • Vodafone Idea is battling for its survival in the Indian market after being hit by a demand of ₹53,125 crore in adjusted gross revenue (AGR) dues.
  • After news broke out that Google is exploring a 5% stake purchase in Vodafone Idea, the company’s shares surged by more than 30% on May 29.
  • However, analysts suggest the Google deal alone won’t be enough for the debt-laden telco – it would also need cash infusion by way of selling its stake in tower business.
  • Government intervention by way of reduction in interest rates and spectrum fees will also help the telco tide over the current crisis.
Vodafone Idea is battling for survival in the Indian market. While the lifeline reportedly offered by Google would help the telco, it’s not the only one that the company is betting its survival on.

Vodafone Idea has been in talks to sell its 11.5% stake in Indus Towers to Bharti Infratel in an all-cash transaction for quite some time now. However, an inordinate delay in approval by the Department of Telecom (DoT) has thrown a wrench in Vodafone Idea’s plans.

With the DoT finally approving the deal in February 2020, Vodafone Idea can utilize the proceeds from the sale to reduce its debt burden.

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According to a report by IIFL Securities dated May 28, the 11.5% stake sale would fetch ₹3,200 crore, based on Bharti Infratel’s 60-day volume weighted average price.


Note: Vodafone Idea's share price on 29-05-2020 is taken at 12:10 pm.

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Apart from this, the report also notes that if the British parent Vodafone PLC sells 16% out of its 29% stake in the merged tower company, and uses the proceeds to infuse cash in Vodafone-Idea, it would bring down the latter’s debt by ₹10,000 crore.

If the Google deal and the stake sale in tower go through, here’s how much cash Vodafone Idea would get:

ParticularsAmount (in crore)
5% stake sale to Google (based on May 28 market cap)₹833
11.5% stake sell in Indus Towers₹3181
16% stake sell by Vodafone Plc in tower business₹6971
Total proceeds₹10985

Vodafone Idea also needs government intervention
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Apart from the Google deal and the sale of its stake in the tower business, Vodafone Idea also needs government intervention to survive. This is especially important at a time when its UK parent, Vodafone Plc, has refused to infuse any new equity into the company.

Vodafone Idea is currently laden with a demand of ₹53,125 crore in adjusted gross revenue (AGR) dues from the Indian government. Making things worse, it has posted cumulative losses to the tune of ₹77,000 crore since the entry of Jio in 2016.

On its part, the Indian government has submitted a plea in the Supreme Court to allow Vodafone Idea to defer the payment of AGR dues.
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“The Supreme Court’s (SC) willingness to hear the government’s plea in permitting deferred payment of AGR dues is slightly encouraging. If the SC relents, VIL’s chances of survival would significantly improve,” the report added.

Apart from this, the report also argues that the government has other options to help Vodafone Idea survive, and ensure its 300 million subscribers don’t lose phone service.

It says that the interest rate could be cut from 9.75%-10% to 8.15%, which is the existing SBI prime lending rate. Further, license fee and spectrum usage charges could be brought down from the current rate of 12%.
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However, it will be interesting to see if the government cuts any rates given the massive stimulus spending it has had to do to boost the Indian economy.

Update: Vodafone Idea in a statement to NSE has said, "As part of corporate strategy, the company constantly evaluates various opportunities for enhancing the stakeholders’ value. As and when such proposals are considered by the Board of Directors of the Company warranting disclosures, the Company shall comply with the disclosure obligations under the SEBI Regulations. Currently, there is no proposal as reported by the media that is being considered at the Board."

SEE ALSO:

Vodafone-Idea shares jump nearly 18% after Google reportedly considers a stake in the debt-laden telco

A new research report says Vodafone Idea has to increase tariff by 39% to survive – and that will be a bounty for Reliance Jio and Airtel

Vodafone Idea wants to increase data prices by 10 times - to cover its spectrum dues
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