(MENAFN- Asia Times) The uncertainty surrounding the troubled telecom operator Vodafone Idea further deepened after Kumar Mangalam Birla decided to step down as non-executive director and non-executive chairman.
In an exchange filing on Wednesday, Vodafone Idea said,“The Board of Directors of Vodafone Idea Limited, at its meeting held today, have accepted the request of Kumar Mangalam Birla to step down as non-executive director and non-executive chairman of the board with effect from close of business hours on August 4, 2021.”
Himanshu Kapania, a nominee of the Aditya Birla Group and an industry veteran of over 25 years, has been appointed as the non-executive chairman.
Birla had earlier told the government that he is willing to give up his promoter's stake in the company to keep it afloat. In a letter to Union Cabinet Secretary Rajiv Gauba on June 7, Birla expressed willingness to offer his stake in Vodafone Idea to any state-owned or“domestic financial entity” to keep the company afloat. Birla owns an over-27% stake in Vodafone Idea.
“It is with a sense of duty towards 270 million Indians connected by Vodafone Idea Limited, I am more than willing to hand over my stake in the company to any entity-public sector/government/domestic financial entity or any other that the government may consider worthy of keeping the company as a going concern,” Birla said in his letter.
Later on July 23, UK-based Vodafone Plc CEO Nick Read reiterated its stance that it won't infuse any more equity into its debt-ridden telecom joint venture in India. The UK firm, which owns a 45% stake in Vodafone India, is ready to offer its stake for free to Indian banks/financial institutions or to the state-owned Bharat Sanchar Nigam, provided they take over the company.
Financial woes Vodafone Idea's biggest hurdle is its adjusted gross revenue tax owed to the government. According to the telecommunication department, Vodafone Idea owes more than 582 billion rupees and it has so far paid 78.54 billion rupees.
The background is that India's Supreme Court in 2019 widened the scope of adjusted gross revenue to include income from non-core items such as rent and income from the sale of handsets. This affected legacy companies such as Vodafone Idea and Bharti Airtel. The two companies approached the Supreme Court for correction in the government calculations but their plea was rejected.
The troubled joint-venture is saddled with a debt of 1.8 trillion rupees and other major liabilities include deferred spectrum obligation of 962.70 billion rupees. Vodafone Idea had earlier tried raising funds by bringing in financial investors. But even after several rounds, it has not been successful. The company also expects to raise up to $1 billion from the sale of its fixed-line broadband subsidiary, optical fiber unit, and data centers business.
The prominent lenders to the company include State Bank of India (110 billion rupees), Yes Bank (40 billion rupees), and IndusInd Bank (35 billion rupees). They will have to make massive bad loan provisions and this is expected to affect their earnings performance in the coming quarters.
Vodafone Idea closure could also mean a loss of thousands of direct and indirect jobs and affect small businesses that sell its products and services. The company CEO, Ravinder Takkar, has mailed employees assuring them that there is no need to panic.
Duopoly Market watchers feel the emergence of a duopoly comprising Reliance Jio and Bharti Airtel as prominent private players will be bad for India's telecom business. Interestingly, Bharti Airtel CEO Gopal Vittal has also asserted that a large nation like India needs three private players in telecom.“I think just from a national perspective, it would be appropriate to see an industry structure where three players not just survive but thrive and of course the government player is always there,” he said.
Vittal also hoped the government would take measures to offer relief to the financially stressed industry. He pointed out that the average revenue per user in the Indian telecom market was 'extremely low' owing to a low tariff regime and the industry could revive if this average increased. Vodafone Idea wants the government to fix a floor price and favors a tariff hike to relieve the stress faced by the sector
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