Government Relief Package for Telecom Sector Coming Soon

Senior officials have said that the government will bring a relief package for the telecom sector. However, it won't answer Aditya Birla Group chairman Kumar Mangalam Birla’s offer to sell the group’ stake in Vodafone Idea to any public sector or domestic financial entity.

Relief Package Coming, What about Vodafone Idea?

A government official told ET that it was surprising that while Birla talked about ABG's share in the telco, the letter did not mention the Vodafone's share. The official said, "it appears that the proposal is for a government entity to become a minority shareholder while Vodafone continues to be the majority partner and run the company".

Notably, ABG and Vodafone Group Plc hold 27.66% and 44.39%, respectively in VIL.

Further, he added that Vodafone Group has not reached out to the government regarding the proposal; as such, the government will not seek any clarification. The official also said that the government has already announced a ₹70,000 crore package for BSNL. Therefore, the government's "hands are full".

According to an official, "the telecom department is firming up a relief package to allow surrender of spectrum, reduce bank guarantees, phase out levies and prospectively define AGR to provide relief to the sector as well as Vodafone Idea". Officials have further said that the government will send the relief package to the finance ministry by next week. Also, the government will announce the same by the end of the month.

Birla Reaches out to Government

In a letter dated June 7 to Cabinet Secretary Rajiv Gauba, Birla said, "it is with a sense of duty towards the 27 crore (270 million) Indians connected by VIL, I am more than willing to hand over my stake in the company to any entity - public sector/government/domestic financial entity, or any other that the government may consider worthy of keeping the company as a going concern".

In the same letter, Birla had also sought clarity on requests like AGR dues, moratorium on spectrum payments and floor pricing. Interestingly, the letter predates the fated SC judgement against Vi's request for AGR reassessment. The letter in question became public this Monday.

"Highly Stressed Situation" at Vodafone Idea

Vodafone Group CEO Nick Read had acknowledged the "highly stressed situation" during an earnings call on 23rd July. However, he again said that the company won’t infuse any additional equity in the JV. He said, "India is a question for Vodafone Idea".

"So, I mean, it is…a highly stressed situation, a difficult situation that they are trying to navigate…we as a group try to provide them as much practical support as we can but I want to make it very clear, we are not putting any additional equity into India", Read said.

Worryingly, since the merger of Vodafone Idea and Idea Cellular, the JV has never reported a quarterly profit. In the two years since, the telco now has a debt of ₹1.8 lakh crore.

The problem is simple here; Vodafone Idea is not generating enough cash. So much so that the telco is staring at a potential $3.1 billion cash flows shortfall in FY23. Its net loss in the January-March quarter was ₹6,985.1 crore and cash balance was ₹350 crore.