Vodafone’s Indian joint venture will have to “shut shop” if New Delhi does not intervene to stop a looming multibillion-dollar charge, the owner of the UK telecoms group’s local partner has warned.
Vodafone Idea, a partnership between Kumar Mangalam Birla’s Aditya Birla Group and the UK-based operator, is facing potential ruin after India’s Supreme Court ruled in October that the company had three months to pay $4bn in retrospective levies, penalties and interest.
Mr Birla said on Friday that if the government did not step in, “I think that’s the end of the story for Vodafone Idea.”
“It doesn’t make sense to put good money after bad,” he said at an event hosted by the Hindustan Times. “So that would be the end of the story for us. We’d shut shop.”
The ruling has prompted frantic calls from telecom-industry executives for the government to intervene and support the struggling sector, with rival Bharti Airtel facing a $3bn fine of its own. Analysts think Vodafone Idea, India’s second-largest carrier, is in the most financially precarious position.
The government announced last month it would defer spectrum payments worth Rs420bn for two years, but said at the time it was not considering waiving the historic charges mandated by the Supreme Court.
Nick Read, Vodafone’s group chief executive, said in November that the Indian joint venture could be facing liquidation.
However, Mr Birla’s stark warning still caught Indian investors off-guard, prompting shares in Vodafone Idea to drop as much as 9 per cent on Friday. The Bombay Stock Exchange issued a request for Vodafone Idea to clarify the comments.
Analysts at Bernstein said Vodafone Idea was at high risk of bankruptcy or a highly dilutive raising of equity.
The operator announced a net quarterly loss of Rs509bn ($7.1bn) after the Supreme Court’s ruling, one of the largest in Indian corporate history.
Mr Birla said he expected the government to intervene rather than watch the company go bust. “I have every reason to believe it won’t happen,” he said, referring to the possibility of liquidation. “But at the same time . . . it is true that we would shut shop if we don’t get relief. There is no company in the world that can pay that kind of fine in three months.”
Vodafone Idea and Bharti Airtel were already facing considerable financial strain after a three-year price war sparked by competitor Reliance Jio’s launch. Jio, which is owned by Mukesh Ambani, Asia’s richest man, began an aggressive campaign to gain market share through cut-price contracts that pushed India’s data prices to the lowest in the world. Vodafone Idea has also been shedding users, with many customers migrating to Jio.
Because Jio is much younger, it owes only $1.8m in fines after the Supreme Court’s order.
Vodafone Idea and Bharti have been searching for other means to shore up their finances. Bharti announced this week that it planned to raise up to $3bn through a mixture of equity and debt.
All three companies this month raised prices in order to boost their income. Rates for the cheapest contracts have risen roughly 40 per cent across the industry. But some of Jio’s new rates announced this week remain about 25 per cent lower than those of its competitors.
That has added to pressure on Vodafone Idea and Bharti’s share prices, as analysts bet that the price war is not truly over.
Get alerts on Vodafone idea Ltd when a new story is published