The government is not in favor of merging Vodafone Idea and state-owned BSNL and MTNL, a TOI report said, quoting multiple sources.
“Multiple and strong logical reasons” suggest “outright rejection” of any proposal that gets the debt-laden and loss-making private entity within the fold of the state-owned companies, which themselves have a poor track record of managing their business, the sources said.
These comments come weeks after Chairman of the Aditya Birla Group, Kumar Mangalam Birla, said he was “willing to hand over” his 27% stake in Vodafone Idea to “any entity — public sector/government /domestic financial entity” in the name of “national interest”.
Birla’s call was much in line with proposals from a report of Deutsche Bank. “…the only viable solution is for the government to recapitalise Vodafone Idea by converting its debt into equity, preferably, while merging it with BSNL, and then providing it a clear commercial mandate based on profitability targets and incentives,” quoted a recent note.
Vodafone Idea’s shareholders would be heavily diluted since the debt owed to the government is six times the (telco’s) current market-cap, and such a proposal might not be acceptable to shareholders, the Deutsche Bank report added.
Numbers, on the other hand, are stacked against such claims. Vodafone Idea, the country’s third-largest telecom operator with about 27 million subscribers, is heavily in debt, owing the government Rs 96,300 crore in deferred spectrum payments and another Rs 61,000 crore in AGR liabilities.
The obligations include an interest load of thousands of crores, in addition to bank debt of Rs 23,000 crores. It had losses of more than Rs 7,000 crore in the last two quarters.
BSNL and MTNL, on the other hand, were given a Rs 69,000-crore revival package in 2019 to keep them afloat, and they are still battling to turn a profit.
Minister of State (communications) Devusinh Chauhan responded in Rajya Sabha on August 5, total liabilities of BSNL stood at Rs 81,156 crore at the end of FY21 while MTNL’s at Rs 29,391 crore.
“It will be a financial mess if all the struggling entities are brought together and merged. What purpose does it serve? In fact, if their operations are brought together, it may turn into an even-bigger financial drain on the exchequer in the coming years if the operations do not turn around,” an officer said.
“In any case, instead of being so considerate for an inefficient private entity, the government may simply focus more on the BSNL/MTNL combine and give them more funds to make them competitive and turn them around.”
The suggestion is also opposed by NITI Aayog, which has been involved in the matter by the telecom department. According to the government think tank, any such move could cause “erosion in value” of Vodafone Idea, leaving BSNL-MTNL with little to gain from the deal.
Cultural differences between the two entities also might result in “a sure failure” according to officers. “BSNL-MTNL lacks an aggressive private sector stance, and their employees are aging and saddled with labour and union issues. On the other hand, Vodafone and Idea couldn’t even manage their own merger properly, which was among the reasons behind the joint company’s collapse.”
There are “numerous legal issues” that make this a difficult deal, according to another officer. “MTNL is listed, and so is Vodafone Idea,” he said.
