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Vodafone’s India Venture Seeks Debt Revamp as Losses Mount

Bloomberg logoBloomberg 10/30/2019 P R Sanjai and Anto Antony
a bicycle parked on the side of a building: A cyclist rides passed a Vodafone Group Plc logo at the company's exhibition space during the CeBIT 2018 tech fair in Hanover, Germany, on Monday, June 11, 2018. CeBIT, Europe's business festival for innovation and digitization, runs June 11 - 15.© Bloomberg A cyclist rides passed a Vodafone Group Plc logo at the company's exhibition space during the CeBIT 2018 tech fair in Hanover, Germany, on Monday, June 11, 2018. CeBIT, Europe's business festival for innovation and digitization, runs June 11 - 15.

(Bloomberg) -- Vodafone Group Plc’s Indian venture, reeling under $14 billion of net debt, mounting losses and dwindling subscribers, has approached creditors for better payment terms to revive the sinking carrier, people with direct knowledge of the matter said.

Vodafone Idea Ltd., formed by last year’s merger of the British telecommunications firm’s local unit with billionaire Kumar Mangalam Birla’s Idea Cellular Ltd., has warned lenders that it won’t be able to honor its commitments for long under current conditions, the people said, asking not to be named as the discussions are private. One of its requests was a temporary halt to loan payments, although no formal proposal has been made, two of the people said.

A spokesman for Vodafone Idea said the company hasn’t asked lenders to rework payment terms and the carrier continues to pay all its debts as and when they fall due. “The financial stress in the telecom sector is well acknowledged and all telecom operators have asked for requisite help in reducing it,” the firm said in the statement. A spokesman for the Newbury, U.K.-based Vodafone Group pointed to a filing by the India venture in July that stated Vodafone Idea had been in discussions with lenders for some waivers in the prior quarter. He didn’t comment further.

The distress at India’s No. 2 phone operator deepened last week after the nation’s top court ordered it to pay about $4 billion in past dues, dealing a fresh blow to the struggling business. Vodafone Idea has been losing subscribers and reporting losses every quarter since the two partners announced their merger in 2017, while the entry of billionaire Mukesh Ambani’s wireless provider Reliance Jio Infocomm Ltd. a year earlier with free calls and cheap data added to the venture’s woes.

Vodafone Idea’s shares fell 1% to 3.81 rupees, a record low, in Mumbai on Wednesday.

Court Ruling

The court ruling on Oct. 24 was part of a wider legal dispute over the way Indian carriers calculate revenue. The nation’s top court upheld the government’s method, and told several companies, including now-defunct ones, to pay about $13 billion in total.

An upfront liability for Vodafone India may compel it to appeal to the National Company Law Tribunal, analysts G.V. Giri and Balaji Subramanian at IIFL Securities Ltd. wrote in a report last week, referring to the quasi-judicial body that handles insolvency petitions.

Should the government take substantial steps to ease the burden of the carriers, Vodafone Idea may not press for a debt recast, some of the people said.

Vodafone Group, which has been pulling out of far-flung markets to focus on Europe, isn’t keen to plow any more money into the Indian venture, which is “ring-fenced,” Chief Executive Officer Nick Read said in September. The Newbury, England-based firm agreed to sell its New Zealand unit for $2.2 billion in May.

The British firm reluctantly participated in a rights issue by Vodafone Idea earlier this year that raised 250 billion rupees ($3.5 billion), some of the people said.

To read more on India’s telecom and debt woesAsia’s Richest Man Emerges Winner as Rivals Face $7 Billion Bill
The $84 Billion Dilemma Vexing India’s Three Telecom Tycoons
India to Consider Relief Measures for Its Ailing Telecom Sector
Airtel Africa’s Stock Debut Among Worst in Europe This Year

The losses at the Indian carrier may be pushing Vodafone Group toward the exit door, more than a decade after it entered what was once its most promising market. Since its acquisition of Hutchison Whampoa Ltd.’s Indian operations in 2007, the U.K. company has been dogged by a $2.2 billion tax bill -- a case it’s still fighting with the Indian government despite a ruling in its favor by the nation’s top court in 2012.

In a filing on July 26, Vodafone Idea said in the quarter through June 30 it classified 102 billion rupees from non-current borrowings to current maturities of long-term debt for not meeting some covenant clauses for specified financial ratios. During the quarter “the company has exchanged correspondences/been in discussions with these lenders for the next steps/waivers,” it said.

Vodafone Idea has enough cash reserves to service its debt obligations, for the time being, one of the people said. The company had cash and equivalents worth 75.5 billion rupees as of March 31, according to data compiled by Bloomberg.

Jio Shake-Up

Vodafone Idea has been lobbying for government intervention to correct a market that’s been skewed by freebies thrown around by Ambani’s Jio, one of the people said. The upstart has elbowed into the top three by signing up more than 350 million subscribers in the three years since its debut. The growth of Jio forced some incumbents to merge or sell out. One of the casualties of this shake-up was the carrier run by Ambani’s younger brother, Anil. Reliance Communications Ltd. slipped into insolvency earlier this year.

The intense competition for a slice of the nation’s 1 billion-plus phone users has driven tariffs to less than a cent, weighing on earnings for those who survived the price war. The investments needed to roll out their networks across the country and the price of airwaves -- among the highest in the world thanks to a government that counts on the revenue to finance its budget deficit -- have also piled on debt.

Debt Pile-up

After spending $50 billion to build Jio’s 4G network, parent Reliance Industries Ltd. had a net debt of 1.54 trillion rupees as of end-March, Ambani said in August. Tycoon Sunil Mittal’s Bharti Airtel Ltd., which lost its top ranking after Jio’s onslaught, had a net debt of 930 billion rupees as of June 30, according to the company.

Lenders to Vodafone Idea through loans and so-called bank guarantees include State Bank of India, the nation’s biggest by assets. A representative for the bank didn’t respond to a request for comment.

India’s Telecommunications Minister Ravi Shankar Prasad said this month that the government is planning some reforms in the way spectrum is priced. The carriers are facing billions of dollars more in expenditure as authorities prepare to auction 5G airwaves before the end of the financial year ending March.

On Tuesday, a government official in New Delhi said a panel of senior bureaucrats will look into the demands made by telecom companies to defer airwave payments due by March 2021 and 2022.

Vodafone, with the help of Birla, its partner, is seeking spectrum at reasonable prices and is also pushing for some flexibility with lenders, they said.

(Adds share performance in fifth paragraph.)

--With assistance from Suvashree Ghosh and Thomas Seal.

To contact the reporters on this story: P R Sanjai in Mumbai at psanjai@bloomberg.net;Anto Antony in Mumbai at aantony1@bloomberg.net

To contact the editor responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net

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