• The state is set to receive a 35.8% stake in Vodafone Idea.
  • Share prices drop around 20% in the wake of the news.
  • Stake will be exchanged for easing of the struggling JV’s considerable debt.
  • Government “do not want to run company”, insists Vi CEO

Vi selling majority stake to Indian government in bid to stay afloat

Vi selling majority stake to Indian government in bid to stay afloat

Source: Matthew Buchanan / Unsplash

Shares of Vodafone Idea (Vi) nosedived following an agreement to sell a 35.8% stake to the Indian government.

The proposed deal would see the state receive a majority holding in lieu of past dues, as well as delaying its Adjusted Growth Revenue (AGR) and spectrum debts for four years — an open offer initially announced by the government late last year.

In July 2021, ABG Chairman Kumar Mangalam Birla resigned his post as Vi’s Non-Executive Chairman, shortly after the JV lost an appeal to reduce the amount of AGR dues outstanding. At the time, he said the company was approaching “an irretrievable point of collapse”. (Vodafonewatch, #200).

Assuming the deal goes ahead, Vodafone Group will maintain a 28.5% stake, while Aditya Birla Group will hold approximately 17.8%.

Although the government is yet to comment on the proposed plan, Vi’s shares plummeted by over 20% in Mumbai yesterday as the news began to break.

While the move staves off the need for immediate payments, Vi — a joint venture between Vodafone and India’s Aditya Birla conglomerate — is widely reported to owe INR 160bn (£1.6bn, €1.9bn) to the state exchequer for spectrum and other dues, meaning this is likely more of a stopgap measure than a long-term solution.

It has not reported an annual profit since the launch of Reliance Jio in 2016.

The Indian telecom sector has faced endless turbulence since the arrival of Reliance six years ago, which implemented minimal pricing that ultimately led to a race to the bottom.

Many carriers were wiped out entirely, while the previously dominant Airtel and Vodafone saw their profits and market shares dwindle. Cellular Operations Association of India (COAI) director general S.P. Kochar recently told TNIE there isn’t “much scope” for new entrants in the market as “telecom is a not a lucrative field” in the country.

Government keen to avoid monopoly

Vi’s issues do not stop there. Bloomberg reported the move may discourage potential investors, with uncertainty cast over what state control will mean for the business. An analyst told the publication it sends “a very negative signal to the business community”.

Managing Director and Chief Executive Ravinder Takkar has moved quickly to address these concerns, stating that the existing promoters are fully committed to managing and running the company’s operations.

In all of our interactions with the government leading up to the package and even after the announcement of the package, it has been clearly stated by the government that they do not want to run the company,” he said. “They do not have the desire to take over operations of the company. They want three private players in the market, they do not want duopoly or monopoly.”

Even with the restructuring of debts, Vi faces a long-term battle to save itself from closure. The company’s subscriber base reportedly sank almost 10% in the year to October 2021, with further losses likely in the months since.