The government has given an option to telcos to pay back interest on dues through equity and also conveyed that it has no interest in acquiring any telecom company, a top official of debt-ridden Vodafone Idea has said.
Vodafone Idea Ltd (VIL) Managing Director and CEO Ravinder Takkar in an interview to PTI said it is clear that the government wants the company to compete in the market and there should be at least three private service providers in the telecom sector.
"I have had many many interactions across various parts of the government leading up to this announcement (telecom reforms). In all my conversations, it is absolutely clear that the government has no interest in owning or acquiring or running any other telecom company," Mr. Takkar said.
The government is already managing loss-making telecom firms BSNL and MTNL which are yet to post profit after a relief package of around ₹69,000 crore granted to them in October 2019. Some experts contended that the government may end up holding a "sizable" chunk (estimates varied from 26% to majority stake) in VIL at the end of moratorium period, if the telco opts to pay cumulative interest or annual instalments by way of equity.
"They (government) have absolutely made it clear that they want three private players to remain. They want us to compete in the market. They want us to operate in a competitive manner," Mr. Takkar said.
VIL had total gross debt of ₹1.91 lakh crore, excluding lease liabilities and including interest accrued but not due, as of June 30, 2021. The debt comprises deferred spectrum payment obligations of ₹1.06 lakh crore and AGR liability of ₹62,180 crore that are due to the government and debt from banks and financial institutions of ₹23,400 crore.
The company had posted consolidated revenue of ₹9,152.3 crore during the April-June period and the finance cost was ₹5,228.4 crore.
According to Jefferies, the 4-year moratorium on payments will offer VIL cashflow relief and "could lead to the government taking up sizable stake in VIL". The investment banking group analyst report had projected that the government could own 26% of VIL at the end of four-year period, if the telco chooses to pay the cumulative interest of ₹9,000 crore through equity.
Mr. Takkar said that from the company's perspective exercising equity option for interest payment is the least area that has been its focus and VIL is committed to running the company.
"Our intention is to pay back to the government and our business plan will reflect that part. But certainly having that option where that could be converted into equity is a bold move and in a way ensures that if the industry is not fixed then the government will continue to support the industry for a longer period of time as long as it needs to be," Mr. Takkar said.
Credit Suisse has said moratorium would ease immediate cash flow constraints for VIL but it will need to also raise around ₹7,300 crore over the next six to nine months to repay its non-spectrum debt and ride through these four years with minimal capex.
It said that despite the moratorium and equity conversion of interest during the period, VIL will need an ARPU (Average Revenue Per User) of ₹240 by financial year 2026 to meet ₹33,000 crore of annual spectrum payments and AGR dues which will need to be repaid over the remaining tenure.
Mr. Takkar said the company will update business plans after government issues guidelines on various measures announced as part of the telecom reforms and may seek board approval for fund raising to bridge the gap required to meet business goals.
He said that the government reform measures have given industry confidence that tariffs can be increased.
"Pricing in my view is a big reason why the industry has reached this level. With this government package certainly pricing in the industry can improve. We have reached a point where three players are there in the industry," he said.
Bharti Airtel and VIL have been advocating for an increase in mobile services rates to reduce financial burdens.
Mr. Takkar said that there are three private players left in the market and everyone wants prices to go up.
"We are not sure what the intention of the other player is going to be. That lack of trust led to a point where nobody wants to take position unilaterally. In that environment, with the government package now, that (trust deficit) goes away which means, without any intervention from the government the industry can manage price increases which I think it will. I certainly see it happening in a short period of time. It will be gradual but it will start to take place," Mr. Takkar said.
VIL had reported average revenue per user (ARPU) of ₹104 in the first quarter ended June 30, 2021 while its competitors Bharti Airtel and Jio had recorded ARPU of ₹146 and ₹138.4.
