Vodafone Idea Shares Plummet 15% After Supreme Court Ruling on AGR Dues
Shares of Vodafone Idea dropped by as much as 15% on Thursday following the Supreme Court’s decision to uphold the Adjusted Gross Revenue (AGR) ruling against telecom companies. The Court also maintained the quantum of the AGR demand, putting further financial strain on the company.
The Supreme Court stated in its verdict that it had reviewed the curative petitions and related documents but found no merit in the arguments presented by the telecom companies. As a result, the Court dismissed the petitions.
Vodafone Idea is currently dealing with outstanding AGR dues totaling ₹70,300 crore, a substantial strain that has further impacted the company’s financial situation. The ruling marks a major blow to the telecom operator, which has been struggling with heavy debt and intense competition in the Indian market. Meanwhile, IIFL Securities reports that Bharti Airtel owes ₹36,000 crore in AGR dues.
The AGR case, which revolves around the calculation of telecom companies’ revenue for the purpose of levying government fees, has been a long-standing issue for Indian telecom operators. The Supreme Court’s decision puts further pressure on Vodafone Idea to meet its payment obligations.
Telecom companies challenged the 2019 Supreme Court verdict
Vodafone Idea, Bharti Airtel, and several other telecom companies had filed a curative petition against the Supreme Court’s 2019 decision. They argued that there were significant errors in the Department of Telecommunications’ (DoT) calculation of AGR dues and claimed that the Court had imposed unreasonable penalties on them.
Understanding the AGR issue
Adjusted Gross Revenue (AGR) is a revenue-sharing mechanism between the government and telecom operators. Under this system, operators must pay a fixed licensing fee and spectrum usage charge to the DoT. These fees are calculated as a percentage of AGR. However, the definition of AGR has been a point of contention.
Dispute over AGR definition
Telecom operators argued before several judicial platforms that AGR should only include their core telecom revenue, while the DoT maintained that earnings from non-telecom services should also be included. In October 2019, the Supreme Court ruled that non-core revenue must be considered when calculating AGR, ending a 14-year legal battle between mobile operators and the government over the definition of AGR.
Impact on Vodafone Idea
The telecom operator has been struggling with financial losses and a declining subscriber base, leading to liquidity challenges. With the AGR dues adding to its woes, Vodafone Idea may face difficulty in raising fresh capital and securing future investments.
The company has been looking for relief from the government in the form of moratoriums or payment rescheduling to ease its burden. However, the Supreme Court’s ruling leaves little room for maneuvering, and Vodafone Idea may need to explore other ways to meet its obligations, including the possibility of strategic investments or mergers.
₹90,000 Crore Dues Impact Telecom Industry
The 2019 Supreme Court decision dealt a major blow to the telecom industry, which was already struggling with massive dues and penalties. As a result, the liabilities of Bharti Airtel and Vodafone Idea surged beyond ₹90,000 crore. Shortly after the ruling, these companies approached the court, seeking more time to pay their dues. In September 2020, the Supreme Court allowed the telecom operators to make the payments over a period of 10 years.
Petition dismissed in 2021
However, in 2021, the Supreme Court dismissed a separate petition filed by telecom companies. They had sought permission to approach the Department of Telecommunications (DoT) to address errors they claimed were made in the calculation of their dues.
Government’s stake in Vodafone Idea
Following the AGR ruling, the government initially held a 33% stake in Vodafone Idea, which has since reduced to 23%. This change occurred as the government was allocated shares in exchange for converting the interest dues arising from the deferral of AGR and spectrum auction payments into equity.
Industry-Wide Implications
The AGR ruling has broader implications for the entire telecom industry in India. Other telecom companies, including Bharti Airtel and Reliance Jio, also face similar AGR demands. While Vodafone Idea is hit hardest due to its financial position, the ruling reinforces the regulatory environment that Indian telecom operators must navigate.
With increasing competition and regulatory hurdles, telecom companies may need to rethink their strategies to maintain profitability and competitiveness in the Indian market.
Vodafone Idea’s recent Qualified Institutional Placement (QIP) was priced in the range of ₹10-₹11 per share. This share sale is part of a broader effort to raise ₹18,000 crore, including fresh issuance of equity. The company aimed to secure funds to alleviate financial stress and invest in network expansion. The QIP saw strong interest from institutional investors, raising ₹5,400 crore through an anchor book before the main FPO.
Outlook for Vodafone Idea
Vodafone Idea future remains uncertain, as it grapples with both operational challenges and significant financial liabilities. The company will need to find ways to reduce its debt burden, seek investor confidence, and continue to operate in a highly competitive environment.
The recent drop in share prices reflects investor concerns over the company’s ability to survive in the long run.
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