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India telecoms ordered to pay up $22bn in dues within 10 years

Vodafone Idea hit hardest by Supreme Court's tight deadline

Vodafone Idea, which formed from a 2017 merger that included Aditya Birla's telecom business, has been plagued by tough competition and outstanding dues to the government.   © Reuters

MUMBAI -- India's Supreme Court on Tuesday gave telecom companies including Bharti Airtel and Vodafone Idea just 10 years to make good on 1.6 trillion rupees ($21.9 billion) in dues owed to the government.

The court also ordered the carriers to pay 10% of the pending dues by March 31, default on which will incur penalties, interest and contempt of court. A request by the telecommunications companies to allow 15-year installments was not approved.

The biggest financial burden falls on Vodafone Idea, a joint venture between local conglomerate Aditya Birla Group and U.K.-based Vodafone. The company owes over 504 billion rupees in spectrum usage and other charges to the government, while Bharti Airtel has to pay up 260 billion rupees.

"Vodafone Idea needed more time because they have their own capital expenditure needs and they are already cash negative," an analyst told the Nikkei Asian Review on condition of anonymity. "They would need capitalization. They will hope and pray that a strategic investor comes in."

Top Indian telecom Reliance Jio -- promoted by India's richest man, Mukesh Ambani -- is not impacted by Tuesday's court ruling because it has already cleared its payment obligation, which was to the tune of 1.9 billion rupees.

"We are looking at a virtual duopoly of two strong players, and a weak player who will not move the needle much," the analyst added. "For Vodafone Idea, it will be a tough ride, while for Bharti Airtel it will be a decent ride and will survive strong."

The stock market appears to agree with this view. Vodafone Idea was sinking 12.8% to 8.89 rupees per share in trading Tuesday, while Bharti Airtel was gaining 6.4%. Shares of Jio parent Reliance Industries were up a modest 0.4%.

Vodafone Idea was pushed into crisis by a Supreme Court ruling last October that ordered the country's main telecom companies to make good on underpaid license fees and spectrum charges. This decision in favor of India's telecoms department resolved a long-standing dispute between the industry and the government.

In March, the Supreme Court reiterated its previous guidance, ordering the telecom operators to pay retrospective levies and penalties to the government.

Yet the telecoms department itself, concerned by the magnitude of the blow to the industry, had asked the Supreme Court to approve installment payments over 20 years. But the court declined to change its stance.

Since the October ruling, Vodafone Idea and Airtel have taken different paths.

Vodafone Idea Chairman Kumar Mangalam Birla warned publicly in December that the company might shut down if no relief were granted. "If we are not getting anything, then I think it is the end of the story for Vodafone Idea," he had said.

The company's financial report for the April-June quarter said that "our ability to continue as a going concern is essentially dependent on a positive outcome with regard to the timeframe for the payment of dues to be made in installments and successful negotiations with lenders."

The Supreme Court allowed for installments, but the 10-year limit is seen as a tough one for Vodafone Idea.

Bharti Airtel has raised $3 billion through qualified institutional placement and foreign currency convertible bonds to cushion itself against the dues as well as competition from Reliance Jio.

Many experts reckon fundraising could be an option for Vodafone Idea. But Deven Choksey, managing director of local brokerage KR Choksey, thinks it will be difficult for the company to raise money in these tough times.

Choksey fears "a death knell for Vodafone Idea because it requires a significant amount of money for investment as well." The company needs to upgrade its offering because voice telephony has converged with data, he said.

Another verdict Tuesday also benefited rivals of Vodafone Idea. The Supreme Court ruled that incumbent telecom players did not need to pay dues on behalf of the bankrupt companies they had acquired. Bharti Airtel bought two telecom companies in 2016.

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