Vodafone Idea Ltd short of options as it is on the risk of going bankrupt

Vodafone Idea Ltd’s gamble is pleading for more time to pay off the $4 billion that it owes to the government has failed in the Supreme court. This has left the distressed mobile carrier with just a few choices as it tries to figure out its future.

The Supreme Court had rejected a plea by all the major and minor mobile carriers last week. The plea was for the extension of the payment schedule. It had asked the companies to deposit a combined $13 billion in the past dues for spectrum as well as licenses by 17th March 2020. Vodafone Idea is already struggling with the losses and debt that has only been rising and now it also owes the major part among its other competitors.

On 15th February 2020, the operator had said in a statement that it is currently assessing the amount that it has the ability to pay. It even said that their ability to continue as a going concern will be dependent on whether the court will make changes to the previous order for which it had set 24th January 2020 as the deadline to make the payment.

The company's British partner, Vodafone Group Plc has written off the value of its 45 percent of holdings in this venture and it has also made it clear that it may not invest more in the venture. Last December, the chairman Kumar Mangalam Birla had made a warning about a potential collapse due to the absence of any kind of relief over the payment.

Some of the challenges that they pose are as follows:

- Relaxation of the Deadline for payment

The Supreme court has rejected the mobile carriers’ plea for the extension of the deadline for the payment. It has also warned that the mobile carrier will have to face the contempt proceedings at a hearing that will take place on 17th March 2020 if it fails to make the payment by then. Vodafone is in the hope that it will try to convince the court for relaxing the payment schedule in the hearing that will take place next month. The carrier has also made a statement that it will continue as a going concern only if it gets a positive outcome in the court hearing.

 - Curative petition

Vodafone Idea  is left with the last legal option, that is, a curative petition. It is just like a review petition and is taken into consideration by the judges in their chambers. The petition is made to cure a gross failure of judiciary or abuse of the judicial process in a verdict. It is very rare that a previous order gets reversed. The judges of the top court have rejected all the relief pleas twice in their rulings of October and January.

- Relief from the Government

The government had made an indication in the past that it might be open to give some relief to the mobile carriers. Taking out the interest from the dues or making the payment of the amount in tranches could be some of the alternatives. Any cancellation or postponement from the government will be done against the backdrop of the increasing fiscal deficit and the urgent need for boosting of the slow economy of India.

- Billionaire bails out

Birla’s conglomerate had been present in the telecommunications space of India for over two decades, forging partnerships with AT&T Inc and the Tata group. Over time, the company had also acquired the other operators and successfully expanded its network all over India. Birla having made an investment in the business, it may make a decision to not to pull the plug at this point. However, he takes a step to save the business, the question will be about how much he may be willing to spend.

- New partners or sale of the shares

The price of the Vodafone Idea shares has jumped 96 percent in the last five years leading to almost taking out its equity. The stock had been traded last at Rs 3.4 (5 cents) in the Financial capital city of Mumbai. With the debt of the company piling up, trying to raise any form of equity is going to be very difficult, as per an analyst at the Kim Eng Securities Pvt in Mumbai, Mr. NeeravDalal.

The company had successfully raised Rs 25,000 crore ($3.5 billion) from a rights issue in 2019 to build up a war chest and fend off Reliance JioInfocomm Ltd. But the Supreme Court verdict for the payment of $4 billion came as a shock and left all of their plans askew.

- Fundraising

Vodafone Idea has been waiting for the answer to the proposed merger of two mobile tower firms, the Indus Towers Ltd and the Bharti Infratel Ltd. This will end up giving the mobile carrier an 11.15 percent stake in the new entity. Selling their stake will help to bring the funds in, but the merger process is going to take too long and the company is on a deadline to make the payment of the dues.

 Vodafone-Idea has also been exploring its options. It has the option of selling about 160,000 kilometers of intra-city and inter-city fiber and its data centers. However, if a rushed asset sale is made, it may not likely fetch a good amount.

There are no lenders that may reach up to Vodafone Idea as the banks are already struggling with cleaning up the big piles of loans from their own balance sheets.

 - Nuclear option

The collapse of Vodafone Idea will be the third bankruptcy of a local mobile carrier firm within the period of two years followed by Aircel Ltd and Reliance Communications Ltd. It can also be said to be the latest casualty of the price war that had been sparked by Jio in the year 2016. If Vodafone Idea is eliminated, India is the world’s second-biggest wireless market will be left with two non-state carriers who will compete against each other along with two government-run carriers.

Picture Source: Business Standard

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