Vodafone Idea won't be able to pay $5-bn govt dues from FY26: CLSA

Vi's capex was 80 per cent lower than rival Airtel in the past nine months

Vodafone Idea’s (Vi) deepening financial crisis is likely to accelerate market share loss, and the firm would be unable to meet its annual $5-billion spectrum and adjusted gross revenue (AGR) payable to the government from FY26, brokerage CLSA said in a report on Wednesday.

While Vi is losing customers every month, it has been unable to raise funds. The firm’s capex was 80 per cent lower than rival Airtel in the past nine months. The planned conversion of interest into government equity hasn't materialised yet.

In its report, CLSA has said that Vi’s market share loss was set to widen due to low capex and lack of 5G roll-out over funding delays. “Despite a four-year interest moratorium, Vi’s financial crisis is deepening and government conversion to equity is pending. Moreover, we estimate that Vi will be unable to meet around $5 billion in annual payments from FY26 (3.5x current cash flows),” CLSA said in its report.

Vi didn’t respond to CLSA observations.

In September 2021, the government had announced a telecom reforms package. Telecom companies were provided a four-year moratorium on payment of AGR and spectrum dues (except for those purchased in 2021).

The companies were also given the option to convert interest on dues into equity to the government. Last January, Vi opted to convert Rs 16,000 crore interest into equity for the government. This would give the government a 33 per cent stake in Vi. However, this proposal is pending.

“Vodafone Idea has multiple requirements. It has a particular requirement of capital. How much capital, who will infuse? All those things are under discussion at this point,” Union communications minister Ashwini Vaishnaw said at an industry event earlier this month.

“The crisis could worsen rapidly unless (Vi) promoters infuse significant capital, the government converts debt, and capex is ramped up. Tariff hikes and AGR relief could improve Vi’s risk/reward profile but its 17 per cent all-India sector revenue share is an increasing target for Bharti Airtel and Reliance Jio,” CLSA noted.

The firm’s gross debt at the end of the September quarter stood at Rs 2.2 trillion comprising deferred spectrum liabilities and bank borrowings. While spectrum liabilities have increased, Vi managed to reduce bank borrowings sequentially.