Govt caps Vodafone Idea payout at Rs 124 cr

Offering a lifeline to struggling debt-laden telecom operator, the Government has capped annual payouts to clear past dues at Rs 124 crore over the next six years, easing near-term cash flows, the company said on Friday.

Between March 2032 and March 2035, the yearly outgo will be trimmed to Rs 100 crore, Vodafone Idea said in a stock exchange filing citing a communication received from the Department of Telecommunications (DoT). It went on to State that the remaining of the adjusted gross revenue (AGR) dues shall have to be paid in equal installments annually over six years starting March 2036.

The Government had on December 31 approved a partial moratorium Vodafone Idea’s past dues, freezing them at Rs 87,695 crore that was to be cleared from 2031-32 to 2040-41. This amount, too, will be reassessed by a committee based on an audit.

The payment schedule details sent Vodafone Idea shares higher by 9 per cent in morning trade but stock pared most of its gain by afternoon as analysts remained cautious about upcoming funding needs to support its 5G expansion plans. The stock closed at Rs 11.27, down 2 per cent, on the BSE. The relief measures approved by the Union Cabinet on December 31 were aimed at protecting the interest of the Government (which has about 48.9 per cent stake in the telco), enable orderly payment of dues to the Centre by way of spectrum auction charges and AGR dues, ensure competition in the sector and safeguard the interests of 20 crore consumers of Vodafone Idea.

AGR dues refer to payments owed by telecom companies to the Government based on adjusted gross revenue (AGR). It is the revenue on which telecom operators must pay licence fees and spectrum usage charges. It is defined to include all revenues, even non-telecom income (like interest, rent, asset sales).

Besides these outstanding, the AGR dues for 2017-18 and 2018-19, which were finalised based on the Supreme Court order of September 2020, will now have to be paid over 2025-26 to 2030-31 fiscal years without any change. These, the company said on Friday, work out to Rs 124 crore payout annually.

Vodafone Idea has been battling a prolonged financial crisis, driven by intense price competition, high debt, and massive AGR liabilities that arose from a change in the definition of AGR. The company has struggled with persistent losses, a shrinking subscriber base, and limited ability to invest in network expansion, even as rivals accelerated 4G and 5G rollouts. Repeated rounds of Government relief and equity conversion of dues have kept the company afloat, but its long-term viability continues to hinge on sustained policy support, fresh capital infusion, and a turnaround in operating performance.

Some had expected that the Cabinet would waive a part, if not all, of the AGR dues. But instead, it decided to give a moratorium, which would allow the company to recover. Vodafone Idea will pay the Government Rs 1,144 crore over the next 10 years and rest of the adjusted gross revenue dues, frozen at Rs 87,695 crore by the Union cabinet, from March 2036 onwards.

Vi, however, said the entire AGR dues comprising principal, interest, penalty, and interest on penalty for the period from 2006-07 to 2018-19 as of December 31, shall be frozen and be payable in various tranches. The moves provide a fresh lease of life to the company as the debt-ridden firm had to pay around Rs 18,000 crore by March 2026 and a similar amount every year for the next six years in the absence of relief from the Government.

VIL, in a letter to the DoT earlier this year, said its liabilities to the Government are about Rs 2 lakh crore, including Rs 1.19 lakh crore towards spectrum dues. The company said in case of no support, the Centre will face significant direct monetary loss with no recovery of spectrum dues, equity value of Rs 53,083 crore becoming nil, and no recovery of AGR dues.

The annual liabilities of Vi were more than double its annual operational cash generation -- in the range of Rs 8,400-9,200 crore for the last three years. Vi said a committee is to be constituted by the DoT to reassess the AGR dues, whose decision shall be final.

“Thereafter, the reassessed amount is to be repaid between March 2036 and March 2041 in equal annual installments,” the filing said. Analysts expect that the reassessment is likely to reduce Vi’s AGR dues and the relief given by the Government may help it raise Rs 25,000 crore debt that the company has been looking for investment in the networks.

“In our view, this could fast-track the completion of Vi’s Rs 250 billion (Rs 25,000 crore) bank debt raise and potentially enable another equity raise down the line. Besides meaningfully lifting concerns on Vi’s ability to service Government dues and therefore on its ability to continue as a going concern, these should also enable the company to revive its network investments,” a Citi report said.

An Ambit Capital report said decisive Government action with possible upside from reassessment would enable Vi to raise bank funding -- necessary for carrying out survival capex. The report said a favourable verdict from the Supreme Court has already enabled Vi to raise Rs 3,300 crore through non-convertible debentures recently.