Vodafone Idea board to meet today as options run out

• Supreme Court had ordered telecom companies to pay AGR dues of over ₹1 trillion to DoT by 23 January
• Vodafone Idea owes the DoT ₹40,000 crore.

Faced with a potential closure of operations, the board of Vodafone Idea Limited (VIL) is expected to informally meet on Saturday to explore available options after the Supreme Court on Friday pulled up mobile service operators and the department of telecommunications (DoT) for failing to comply with its verdict on dues to relate to adjusted gross revenue (AGR).

The top court had ordered telecom companies to pay AGR dues of over ₹1 trillion to DoT by 23 January.

Vodafone Idea owes the DoT ₹40,000 crore.

According to two people directly aware of the developments, the board is expected to consider options which include filing for bankruptcy and merits of raising bridge funding to meet part payment of the AGR dues along the lines of rival Bharti Airtel which on Friday pledged to ₹10,000 crore by February 20.

“While filing for bankruptcy is clearly an option, the board is keen to consider other options such as raising of additional funding if there is assurance from the government that part of the AGR outgo will be offset by immediate tax refunds,” said one of the person cited above.

Vodafone Idea has been seeking about ₹ 7,000 crore in tax refunds for the past few years.

According to persons cited above, Vodafone Idea expects to receive about ₹ 1,000 crore from Mumbai unit of income tax department and another ₹ 6,000 crore from the Delhi unit for multiple assessment years dating back to 2004-05.

A recent report by rating agency Crisil said VIL has made a total provision of ₹44,150 crore ( ₹27,610 crore towards licence fee and ₹16,540 crore towards spectrum usage charges) till the quarter ended September 30, 2019, for the disputed liability towards AGR.

According to the report, the company’s existing liquidity ( ₹15,390 crore) will be insufficient if there is a payout of licence fee liability of ₹27,610 crore. Given the weak operating performance, the company’s ability to raise fresh debt is low.

VIL’s solvency is dependent on significant and timely relief packages from the government on AGR-related dues and support from sponsors, the report said.

“The company is also hoping that the government will retrospectively change the definition of AGR, which could potentially reduce the total liability and give it a breather,” said the first person cited above.

In a similar move, the government, back in 2012, had introduced a retrospective clarification to the Income-Tax (I-T) Act, 1961, virtually amending the law to ensure that cross-border transactions such as the $11.08 billion (around Rs55,735 crore today) Vodafone-Hutchison deal are taxable. The Supreme Court had gone on to rule that the deal was not taxable in India.

In December last year, Aditya Birla Group chairman Kumar Mangalam Birla had warned that the group’s telecom unit, Vodafone Idea Ltd, will have to “shut shop” if there was no relief from the government following the Supreme Court ruling requiring it to pay statutory dues of ₹40,000 crore to the DoT within three months.