Vi stock tanks 4% after Vodafone Group says telco needs liquidity support

Shares of Vodafone Idea Ltd (Vi) slipped over 4% on Wednesday after the company's British parent, Vodafone Group Plc, valued the telecom operator at 'nil'.

Vi remains in need of additional liquidity support from its lenders and intends to raise additional funding, the Vodafone group says in a filing with the London Stock Exchange.

There are significant uncertainties in Vi's ability to make payments in relation to any remaining liabilities, says Vodafone Group, adding that the carrying value of its investment in Vi is 'nil'.

Reacting to the development, shares of Vodafone Idea plunged 4% to ₹7 apiece on the National Stock Exchange (NSE). The market capitalisation of the company stood at around ₹34,319 crore.

As part of the agreement to merge Vodafone India and Idea Cellular in 2017, the Vodafone Group's potential exposure to Vi is capped at ₹6,400 crore following payments made from Vodafone to Vi, in the year ended March 31, 2021, amounting to ₹1,900 crore.

On Indus Towers, the Vodafone Group says Vi's ability to satisfy certain payment obligations under its Master Services Agreements with Indus Towers is 'uncertain' and depends on a number of factors including its ability to raise additional funding.

"Under the terms of the Indus and Bharti Infratel merger in November 2020, a security package was agreed for the benefit of the newly created merged entity, Indus Towers, which could be invoked in the event that VIL was unable to make MSA payments," it says.

These developments come weeks after Aditya Birla Group chairman Kumar Mangalam Birla rejoined the board of Vodafone Idea (Vi) after a gap of 20 months. The move was expected to boost investors' confidence in the cash-strapped telecom operator, which is struggling to secure fresh funds to roll out 5G services.

According to foreign brokerage CLSA, Vodafone Idea's delayed 5G rollout is also triggering further market share consolidation for Jio and Bharti.

Vodafone Idea lost around 20 lakh mobile subscribers in February while rival Reliance Jio — India's largest telecom operator — and Bharti Airtel collectively added over 19 lakh subscribers.

In February, the government allowed Vodafone Idea to convert its Adjusted Gross Revenue (AGR) dues, the usage and licensing fee that telecom operators are charged by the Department of Telecommunications (DoT), worth ₹16,000 crore into equity shares, making the government the largest stakeholder in the company with around 33% stake.

Wider reforms announced as part of the relief package include a four-year moratorium on spectrum and AGR payments and the option to convert payments due on spectrum and AGR payments to equity at the end of the moratorium period which Vi elected to accept in October 2021.