Company not to Blame: Vodafone Idea Unlikely to File for Bankruptcy

Senior executives at the Aditya Birla Group have said that Vodafone Idea will not opt for voluntary bankruptcy.

Vodafone Idea Squares Up for a Fight

According to the executives, such a move will mean that the telco was to blame for its predicament. Since it isn't the case, hence the stance. The executives have laid the blame on the regulatory regime for the telco's worrying situation. They've said that the lack of a 'level playing field' has resulted in this situation, and that Vodafone Idea's fate now lies in the government's hands.

A top ABG official said, "the group has put in Herculean efforts to get the business on track. Filing for bankruptcy is not an appealing option considering that it was not a management error that led to the business failure but a lack of level playing field".

Another top executive said, "the company cannot recover at this stage. Operational profits can't be made. There are no funds that can be infused further by the Aditya Birla Group or Vodafone Group or investors. Its fate now lies in the hands of the government". They further added, "in most countries, governments do step in to save businesses and employment especially where there is no fraud or malpractice that led to the collapse".

The two partners, AGB and Vodafone, have 27.66% and 44.39% stake in Vodafone Idea. Because of the financial mess, the telco faces a real threat of a potential $3.1 billion shortfall in cash flows come FY23; its Q4 20-21 cash balance stood at ₹350 crore. What's more, the telco has been trying and failing to raise ₹25,000 crore for the best past of an year now.

Birla's Letter

Vodafone Idea's financial woes had been all talk before Birla's letter became public. In the letter, Birla had offered ABG's stake to any PSU or domestic financial entity. He had also said that without the government's support, the telco will not stay afloat. The contents of the letter went public on Monday; on Wednesday, Birla resigned from his post at the head of the telco. He did not cite any reasons for the resignation, and the telco has since replaced him with Himanshu Kapania.

The government has not responded to Birla's letter. The officers have said that the government already "has its hands full" with BSNL. On the other hand, the government is simultaneously preparing a relief package for the telecom sector.

Since the chaos ensued, the telco has seen its shares plummet to ₹5.94 on BSE on Thursday. The situation has been worsened by its ₹1.8 trillion debt, along with consistent losses since August 2018. Further, it has seen its net loss widen to ₹6,985.1 crore in the last quarter. Notably, the telco has not announced quarterly results for Q1 FY21-22.

Will All Be Okay at Vodafone Idea?

After Kumar Mangalam Birla resigned from Vodafone Idea, Ravinder Takkar, MD, Vodafone Idea, addressed the telco's employees on Thursday in an internal communication. He said "even as Mr Birla steps down from the board, he and the Aditya Birla Group will continue to provide support and guidance to the company, in line with the stated position of the group. We will therefore continue to get benefit of his experience and support".

He also detailed out the changes in the Board posts that took place on Wednesday. "I would urge all of you to continue to remain focused on providing quality service to our customers, sustain intensity in the market to win and deliver our goals", he added.

Vodafone Idea has been dealt a huge blow in SC throwing its AGR dues reassessment plea. The telco had been already suffering since September 2019, when the apex court redefined AGR to cover non-telecom items. The move had left Vi with AGR dues worth over ₹58,000 crore. It has paid ₹7,854 crore so far, however, it looks likely that it will have to pay the rest of it as well.

The telco now looks set to double down on its effort to hang on; if it does, it will be for the benefit for the customer in the end.