MUMBAI (NewsRise) -- Vodafone Idea shares slumped Friday a day after India's Supreme Court dismissed requests by telecom companies for relief on payment of dues worth $13 billion to the government.
The mobile phone operator, grappling with a huge debt pile and staggering losses, faces an uncertain future after the ruling. The top court's decision also raises the specter of India's telecom industry further consolidating into a two-player market.
Vodafone Idea's British parent Vodafone Plc, which already wrote off the value of its investment in the venture, warned in October that the situation in India is "critical." Billionaire Kumar Mangalam Birla, the founder of Aditya Birla Group that owned Idea Cellular, said last month the company would be forced to shut down if it did not get a reprieve on AGR dues.
On Thursday, the Supreme Court rejected pleas of wireless carriers such as Vodafone Idea and Bharti Airtel seeking a review of its October ruling that upheld the government demand to recover dues in adjusted gross revenue (AGR). Both Bharti and Vodafone Idea said they would file curative petitions with the Supreme Court on Thursday's ruling.
Shares of Vodafone Idea tanked as much as 40% to its lowest in two months in Mumbai trading on Friday, before paring some of the losses to close down a little over 25%. Bharti Airtel shares gained 5.5%, while the benchmark S&P BSE Sensex ended little changed.
Bharti will have to fork out 343 billion rupees ($4.84 billion) in AGR dues and penalties by Jan. 23, while Vodafone Idea may have to pay as much as 443 billion rupees, the biggest in the industry, analysts said.
Investors threw their weight behind Bharti as it has sufficient funds to pay off the dues and is expected to gain from a likely shift in customer base from Vodafone Idea.
"Vodafone has no source of cash to pay the liabilities and was entirely dependent on payment relief," brokerage Motilal Oswal said in a report. "It has cash merely to continue operations for the next two to three quarters."
Vodafone's possible default on its 1.2 trillion rupees of debt may lead to further loss of revenue for the government, ballooning of bad loans in the banking sector, and "temporary-but-severe" inconvenience to consumers, analysts said.
The government has so far remained steadfast on the stance that it cannot offer any reprieve unless the Supreme Court allows it the flexibility to do so. On Friday, telecommunications Minister Ravi Shankar Prasad declined to comment on the court ruling.
Still, analysts and the industry hope that the government will spread out the payment over a long period of time, to avoid pushing Vodafone into insolvency.
"The consequence of no action by the government would definitely include a major hit to its revenues -- 910 billion rupees from Vodafone in old spectrum dues, plus this AGR penalty -- a significant hit to the banking system, and a reputation hit for India as an investment destination," brokerage IIFL said in a report on Friday.
-- Dhanya Ann Thoppil