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Telecommunication

India's support to telecom industry unlikely to sustain Vodafone Idea

Pile of debt, cash crunch could scupper mobile phone operator in long term

India's debt-laden telecom industry has been seeking a relief package from the government.   © Reuters

MUMBAI (NewsRise) -- India's recent relief measures for the telecom industry may help cash-strapped Vodafone Idea survive in the near term, but billions of dollars of debt and a stretched balance sheet make its long-term prospects bleak.

On Monday, India's telecommunications department approached the Supreme Court seeking a relaxation of timeline for wireless operators to repay their penalties and levies. The government has offered a 20-year payment window to the companies to pay their dues in adjusted gross revenue, according to a top government official. It even plans to waive off the interest on penalties.

India's debt-laden industry has been seeking a relief package from the government as operators such as Bharti Airtel and Vodafone Idea faced a Mar. 17 deadline to pay billions of dollars to the government following a Supreme Court order last month. In October, the Supreme Court had upheld the telecom department's demand that operators must pay $13 billion in levies and penalties on or before Jan. 23.

The telecom department's plan requires the approval of the Supreme Court, which last month panned the government for allowing the operators to disregard the January deadline.

"If implemented, this should help the industry to navigate the immediate liquidity pressure," HSBC said in a report on Monday. "Vodafone will get an immediate reprieve, enabling it to remain a going concern."

Vodafone Idea, which is laden with a debt of 1.03 trillion rupees ($14 billion), is now barely managing to stay afloat. With cash of only 90 billion rupees at the end of December, after adjusting for the AGR payment, and expected operating earnings of 119 billion rupees this fiscal year, the company may struggle to manage interest payments and capital expenditure, said brokerage Motilal Oswal.

The company had last month warned that it may not be able to remain a going concern if the government didn't extend the tenure to pay the outstanding dues. It reported its sixth straight quarterly loss in October-December amid intense price competition. The carrier's loss of 509.22 billion rupees in July-September was the biggest-ever quarterly loss by an Indian company.

HSBC said even without the AGR dues, Vodafone Idea's balance sheet will be "stretched." This is likely to restrict the scale of its network investments relative to rivals Reliance Jio Infocomm and Bharti Airtel - both of whom are likely to gain market share, it said.

In the quarter ended in December, Reliance Jio increased its subscriber market share to 32.1% and revenue market share to 35.4%. This is largely at the cost of a reduction in Vodafone Idea's market share, India Ratings said in a report on Monday.

After a self-assessment of its AGR outstanding, Vodafone Idea said it has paid the principal amount worth 68.54 billion rupees.

As per the government estimates, Vodafone Idea may have to pay as much as 442 billion rupees in adjusted gross revenue dues and penalties. Whether the government will dispute the operators' assessment is not yet known.

Shares of Vodafone Idea slumped 15% in Mumbai trading on Tuesday, while the benchmark S&P BSE Sensex closed down 2.6%.

--Dhanya Ann Thoppil

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