Is It Time To Say ‘Goodbye, Vodafone?’ Choice Is Government Takeover Or Bankruptcy

With the Supreme Court pulling the rug from under India’s telecom companies over the payment of AGR (adjusted gross revenues) dues, it may be time to bid goodbye to Vodafone Idea.

A three-judge bench headed by Justice Arun Mishra expressed shock that the telcos – Vodafone Idea and Bharti Airtel – had not paid any of their dues by the 23 January deadline set by the court in its AGR judgement last October. Justice Mishra was livid, saying he was “literally shocked” that not a "single penny has been paid till date", and asked for the initiation of contempt proceedings against the telcos. Reliance Jio is the only telco to have paid up.

The court was equally angry with the Department of Telecom for allowing the telcos to delay payments until the court verdict.

The bench’s intransigent stand on the payment of dues will push Vodafone Idea, which will have to cough up Rs 53,000 crore quickly, towards collapse. Bharti Airtel, which has over Rs 35,000 crore in dues, can raise the money required. It is building a war-chest to pay off the dues, having raised $250 million in perpetual bonds recently after garnering $3 billion in January.

Having reported another massive loss of Rs 6,438 crore in the December quarter and rapidly losing subscribers, Vodafone Idea is clearly a candidate for insolvency proceedings unless its two joint venture partners – Vodafone Group and the Aditya Birla Group – are willing to put in additional capital. Both partners have said repeatedly that they can’t do so unless government offers them relief on spectrum charges and AGR dues.

For the government, the political cost of offering such huge bailouts can be high. Allowing Vodafone Idea to file for bankruptcy is also a problem, for then it is government banks which will find it a problem to recover the loans made to the telco.

This leaves the Narendra Modi government with two real options:

One is to offer relief in other spectrum fees even while collecting the AGR dues. So, telcos can give with one hand and receive with other.

The other option is to temporarily nationalise Vodafone so that its dues can be quietly written off by simultaneously infusing capital in it and receiving it back as AGR payments. (Read the case I made for this earlier here)

At some point in the future, Vodafone Idea can be resold to private investors.

On Friday, after the Supreme Court refused to reconsider pleas for more time to pay AGR dues, Vodafone Idea shares crashed to under Rs 4, taking its market capitalisation down to just over Rs 11,000 crore.

If the government nationalises it with an in-built provision in the law to privatise it once it is put on an even keel, it can buy the company for Rs 11,000 crore and sell it for multiple times that price once its finances stabilise. This is what the US government did with Citibank after the 2008 global financial crisis. It took majority interest in Citibank and then privatised it later once its finances were back in shape.

This may be a better option than allowing Vodafone Idea to land up at the bankruptcy courts, where banks will have to write off the bulk of their outstandings.

Of course, this is something the government can decide only after Vodafone Idea’s promoters formally say they can’t put in more money to rescue the company. It is time for government to place those calls to the Vodafone CEO and Kumar Mangalam Birla.