Vodafone Idea has approved a bailout plan to make India’s government its largest shareholder, by nationalizing a nearly 36 per cent stake in the faltering telecommunications operator to prevent its collapse.
The company, a joint venture between the British telecommunications group and India’s Aditya Birla conglomerate, has been torn between crises over the past few years, which has called into question its survival.
It has market share to better funded competitors, including Reliance Jio, owned by Indian tycoon Mukesh Ambani, and hit by a multibillion-dollar debt account of New Delhi on historical spectrum and other license fee payments.
Vodafone Idea said on Tuesday that its board had approved a government-run rescue plan last year to convert the interest due to Indian authorities into equity in exchange for deferring its “adjusted gross income” and spectrum fees for four years.
If the government accepts the calculations, it will walk away with a 35.8 percent stake. The shareholdings of other investors will be diluted, leaving Vodafone Group with 28.5 percent and Aditya Birla with 17.8 percent.
Shares in Vodafone Idea on India’s National Stock Exchange fell 14 percent to Rs12.8 ($ 0.17) on Tuesday morning.
Analysts have said the plan to make the Indian government Vodafone Idea’s largest owner is likely to prevent its immediate collapse. New Delhi’s intervention came even as the authorities worked to sell stakes in state-owned companies such as loss-making airline Air India.
The bailout will also prevent India’s telecommunications sector from effective duopoly while banks are protected from a surge in bad loans if the company folds. Vodafone Idea’s gross debt is almost Rs2 billion ($ 27 billion).
But that’s unlikely to change Vodafone Idea’s gloomy business prospects. The loss-making company bled nearly 10 percent of its subscriber base over the past year, bringing it to 269 million in October, the most recent month for which data was available.
Analysts at ICICI Bank predict that the operator will lose another 2 million subscribers in its upcoming results for the quarter to end-December.
India’s telecommunications sector has been in turmoil since 2016, after Ambani launched Jio and used the lowest prices to gain market share, price war unleashed.
The sector had about a dozen operators before financial pressure caused a wave of retirements and consolidation. Vodafone Idea is the product of a 2018 merger between Aditya Birla and Vodafone’s struggling unit, although it did little to turn the business around.
Kumar Mangalam Birla, head of the Aditya Birla group, resigned as chairman of Vodafone Idea in august after warning that the company was approaching “an irreparable point of collapse”.
The surviving operators have all since raised their prices to boost the sector’s financial health, and announced plans at the end of last year to increase rates by about 20 percent.
Rival Bharti Airtel, which is in a much stronger financial and business position, announced last week that it will not convert the interest it owes to the government into equity, but rather choose to pay the spectrum and adjusted gross income costs. Bharti Airtel’s subscriber base rose to 354 million in October from 330 million a year earlier, according to regulatory data.
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