Voda’s no-equity plan after decade of washout

Vodafone has written off nearly $12 billion, in various phases, on account of its Indian investments, both in Vodafone India and after its merger with Aditya Birla-owned Idea Cellular.

That is even higher than what the UK telecom giant paid to acquire Hutchison Essar back in 2007 as it began its tryst with India. And while it has invested over $16.4 billion in the country, it has hardly made any returns for its UK shareholders. They are livid.

That is why, on Friday, Vodafone Group Plc made it clear once again that it will not put any more money into Vodafone Idea. The statement came just a few hours after the joint venture (JV), in a board meeting on the same day,

announced that it would be looking for a fresh infusion of funds, including equity worth ~25,000 crore, to revive the firm.

The move came just a day after the Supreme Court (SC) directed telecom companies (telcos) to pay their adjusted gross revenue (AGR) dues in 10 years, which means Vodafone Idea now has to pay an additional ~7,500 crore annually. Vodafone has a 44.39 per cent shareholding in Vodafone Idea, while the Aditya Birla group holds 27.66 per cent. Under its merger agreement, the Birlas can, however, buy an additional 9.5 per cent from Vodafone, so that their stakes are equalised.

Currently, despite Vodafone having a larger stake, it has equal control in the board with the Birlas. So a dilution of its shareholding does not materially change Vodafone Plc’s equation — until, of course, a new investor comes in. Whatever happens next, it is a far cry from 2007 when Vodafone’s former chief executive officer Arun Sarin announced that he had bought Hutchison Essar at a ‘reasonable price’ and that it would make a major contribution to the Vodafone group over the coming years. Sarin had it all wrong. His misinterpretation is reflected in the staggering financial numbers. In one of its petitions to the SC, Vodafone Idea said in the last 10 years (till 2018-19) it had made cumulative losses from operations of ~55,175 crore (including from operations of the erstwhile Vodafone licence entities, which have merged in JV).

Further, this figure did not include the AGR dues. If they are included, its net losses in FY20 stood at ~73,876 crore, more than its cumulative losses for the last 10 years. A query to Vodafone Plc did not elicit any response. However, the total investment of the promoters and public shareholders is over ~1.9 trillion, of which over ~1.65 trillion has been brought through FDI route, the bulk of it by Vodafone Plc. The latter made its first impairment on its books owing to India in 2010 of £2.3 billion ($ 3.06 billion).