Vodafone decides to stick with no-equity plan after decade of washout

Supreme Court's direction to telecom companies to pay their AGR dues means Vodafone Idea will have to pay Rs 7,500 crore annually
Vodafone has written off nearly $12 billion, in various phases, on account of its Indian investments, both in Vodafone India and after its merger with Aditya Birla-owned Idea Cellular.

That is even higher than what the UK telecom giant paid to acquire Hutchison Essar back in 2007 as it began its tryst with India. And while it has invested over $16.4 billion in the country, it has hardly made any returns for its UK shareholders. They are livid.

That is why, on Friday, Vodafone Group Plc made it clear once again that it will not put any more money into Vodafone Idea. The statement came just a few hours after the joint venture (JV), in a board meeting on the same day, announced that it would be looking for a fresh infusion of funds, including equity worth Rs 25,000 crore, to revive the firm. 

The move came just a day after the Supreme Court (SC) directed telecom companies (telcos) to pay their adjusted gross revenue (AGR) dues in 10 years, which means Vodafone Idea now has to pay an additional Rs 7,500 crore annually. Vodafone has a 44.39 per cent shareholding in Voda­fone Idea, while the Aditya Birla group holds 27.66 per cent. Under its merger agre­e­ment, the Birlas can, however, buy an additional 9.5 per cent from Vodafone, so that their stakes are equalised. 

Currently, despite Vodafone having a larger stake, it has equal control in the board with the Birlas. So a dilution of its shareholding does not materially change Vodafone Plc’s equation — until, of course, a new investor comes in. Whatever happens next, it is a far cry from 2007 when Vodafone’s former chief executive officer Arun Sarin announced that he had bought Hutchison Essar at a ‘reasonable price’ and that it would make a major contribution to the Vodafone group over the coming years. Sarin had it all wrong. His misinterpretation is reflected in the staggering financial numbers. In one of its petitions to the SC, Vodafone Idea said in the last 10 years (till 2018-19) it had made cumulative losses from operations of Rs 55,175 crore (including from operations of the erstwhile Vodafone licence entities, which have merged in JV).  

Further, this figure did not include the AGR dues. If they are included, its net losses in FY20 stood at Rs 73,876 crore, more than its cumulative losses for the last 10 years. A query to Vodafone Plc did not elicit any response. However, the total investment of the promoters and public shareholders is over Rs 1.9 trillion, of which over Rs 1.65 trillion has been brought through FDI route, the bulk of it by Vodafone Plc.  The latter made its first impairment on its books owing to India in 2010 of £2.3 billion ($ 3.06 billion). 

But the big one was in 2016, when it took an impairment charge of 6.3 billion euros ($7.46  billion), which was to reflect the loss in business it faced due to entry of RJio, which was offering free services to consumers — about 2.7 billion euros, both for buying spectrum and for taking care of an anticipated slowdown in its business.

In 2019, once again, with the company expecting that Vodafone Idea would go for liquidation, Vodafone Plc decided to write off the book value of its India business, which was at 1.39 billion euros ($ 1.54 billion) at March 31, 2019.

To put some of these numbers into perspective, global telcos such as Telenor, Sistema, Maxis of Malaysia, and Etisalat, lost over $13 billion of their investments, as they closed shop or sold their assets virtually free.

Most analysts agree that Sarin paid a steep price for grabbing Hutchison Essar, that too after a bitter war with Reliance and the Hindujas. He had earlier picked up a 10 per cent stake in Bharti Airtel, but was not keen on being a silent partner.

But Vittorio Colao, former Vodafone CEO, preferred to be patient, believing in the long-term future of the Indian market. Insiders also say he was too slow in taking Vodafone public in the hope of higher valuations till it was too late. They also accuse him of failing to rise to the impending Jio challenge by not making aggressive moves towards 4G and betting on India being a voice market for many years to come.

When the writing was on the wall, belatedly, it was Colao who approached Birla for a merger.

For the difficult decisions, it was Nick Read, the current CEO, who had to take the tough decisions. He oversaw the merger as the chief financial officer, even though many insiders were doubtful that the two companies, with different cultures and focus areas, could work together.

When Read took the hot seat in 2018 after Colao’s sudden departure, he was blunt. He attacked the Indian regulator for supporting only Jio. When the SC judgment came, he made it clear that if Vodafone did not get any concessions from the government, the joint venture would have to go in for liquidation. Nor, he said, would Vodafone pump in any more money.

People have been ringing down the curtains on Vodafone Idea for some time now. With the new fund raise planned, however, it could well survive. 

But for Vodafone Plc, it will be a different play in the country.  

New branding move?

Kicking off a teaser of sorts ahead of an announcement on Monday morning, @VodafoneIN official Twitter account posted: Hi @Idea, ready for the big day? Idea was quick to respond: “Yes, just can’t wait.”  That triggered a buzz that the telecom firm is all set to announce a new branding. Vodafone Idea is holding a press conference on Monday to make a strategic announcement, the company said earlier on Sunday evening.

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