October 24, 2021

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Vodafone’s India venture near ‘point of collapse’ as shares plunge

Vodafone idea Ltd updates

Shares in Vodafone Idea, the UK telecoms group’s Indian joint-venture, plunged this week after the chair’s resignation and admission that it was heading towards “an irretrievable point of collapse”.

Vodafone Idea’s National Stock Exchange-listed shares fell 18 per cent this week to Rs6.8, or less than $0.01 a share, after a letter from June surfaced in which Kumar Mangalam Birla, whose Aditya Birla Group owns the telco alongside Vodafone, warned India’s government that the company would fail without intervention.

Birla resigned as chair on Wednesday. Vodafone Idea’s stock is down 40 per cent this year.

Its shares bounced 14 per cent on Friday morning after New Delhi’s surprise announcement that it would drop a decade-long dispute with parent company Vodafone Group, from which it had sought almost €3bn in retrospective taxes related to a 2007 acquisition.

But Vodafone Idea, the product of a 2018 merger of Vodafone and Birla’s operators, faces much bigger problems. It has spiralled into an ever-deeper crisis for several years, losing market share to rivals such as Mukesh Ambani’s Reliance Jio after a fierce price war.

It was hit with a bill for about $7bn in 2019 in relation to another long-running dispute over licence fee payments. Vodafone Idea and Bharti Airtel, which also owes billions of dollars, have unsuccessfully disputed the sums. A Supreme Court challenge asking the government to recalculate the fees failed last month.

The ruling effectively closed one of Vodafone Idea’s final avenues for revival. In his June letter, Birla offered to “hand over” his 27 per cent stake to a public sector or government entity to help keep it afloat.

He added that potential foreign investors had been scared off by the licence fee dues and low prices in the sector.

“Those are desperate signs from a [controlling shareholder] to try and salvage whatever he can for a business making huge losses and which requires huge investments to stay afloat,” said Siddhartha Khemka, head of retail research at brokerage Motilal Oswal.

Vodafone Group, which owns 45 per cent, has ruled out further investment, with chief executive Nick Read saying last month: “We are not putting any additional equity into India.” It has already written off the value of its investment in the country.

Vodafone Idea’s gross debt was more than Rs1.8tn ($24bn) as of March.

“If the main investor is willing to let go of his business, then for the minority shareholders there’s no value for them,” Khemka said. “Whoever would have been holding the stock, in hope that things will improve, is now left without any hope.”

Vodafone Idea’s failure would leave the Indian telecoms sector dominated by Jio and Bharti Airtel. A few years, ago the sector boasted about a dozen private operators, but Jio’s entrance in 2016 sparked a wave of exits after Ambani used rock-bottom prices to gain market share.

Jio and Airtel have scooped up users from Vodafone Idea, which at 277m subscribers has lost 10 per cent of its customer base over the past year.

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