Vodafone Idea to Seek Waiver After Supreme Court Ruling on Overdue Payments

Vodafone Idea will be the worst hit given its already stretched balance sheet, local brokerage ICICI Securities said.

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Vodafone Idea to Seek Waiver After Supreme Court Ruling on Overdue Payments

Vodafone Idea made a consolidated net loss of Rs. 4,874 crores in the quarter to June

Highlights
  • Vodafone Idea and rival Bharti Airtel reported losses in the last quarter
  • Supreme Court on Thursday upheld DoT's demand
  • Shares of Vodafone Idea closed 5.6 percent lower

Loss-making mobile carrier Vodafone Idea said on Friday it will ask the central government for relief on payments of at least $4 billion (roughly Rs. 28,336 crores) after a court ruling required it to pay overdue levies and interest. Supreme Court on Thursday upheld a demand by the country's Department of Telecommunications (DoT) that wireless carriers pay nearly $13 billion (roughly Rs. 92,092 crores) in overdue levies and interest. It also asked telecom companies to deposit the outstanding amount within three months, according to a copy of the order seen by Reuters.

Vodafone Idea and rival Bharti Airtel reported losses for the quarter to June, hit by a price war that began after conglomerate Reliance Industries launched its Jio telecoms arm in 2016 with free voice and cut-price data services.

"The judgment has financial implications, which we are reviewing," Vodafone Idea said in a statement. "We will engage with the DoT in order for it to consider granting relief, including a waiver of interest and penalties."

Both Vodafone Idea and Airtel sparred for over a decade with the DoT over the definition of so-called adjusted gross revenue (AGR), a percentage of which they pay as usage charges for spectrum or airwaves and as licence fees.

The companies maintained that AGR should comprise only revenue accrued from core services and not other revenue such as income from the sale of mobile phones, income from rent of property or the sale of scrap.

The Supreme Court however upheld the DoT's view that all revenue be included in AGR.

On Friday, shares in Vodafone Idea closed 5.6 lower, while Bharti gained 0.8 in a broader Mumbai market that ended flat.

Vodafone Idea will be the worst hit given its already stretched balance sheet, local brokerage ICICI Securities said.

The company, a combination of Britain's Vodafone Group and local Idea Cellular, made a consolidated net loss of Rs. 4,874 crores ($687.68 million) in the quarter to June, and had gross debt of Rs. 1.2 lakh crores.

Bharti Airtel, which owes over Rs. 21,682.13 crores to the DoT, reported a net loss of Rs. 2,866 crores at the end of the June quarter, while net debt was Rs. 1.17 lakh crores.

Bharti could scrape through making the overdue payments, but Vodafone Idea "is estimated to require additional capital to fund even the current operations beyond the next 3-4 quarters," local brokerage Motilal Oswal said.

The court ruling will have limited impact on Jio as it started operations in late 2016, compared with rivals whose outstanding dues, interest and penalties have been mounting for over 10 years.

© Thomson Reuters 2019

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