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Vodafone Idea still on the brink despite small rise in share price

Vodafone Idea with Kumar Mangalam Birla.jpg

The Indian government appears to have blinked first in its fight with its telecoms operators and others over back taxes worth billions.

The government in New Delhi announced on Thursday that it was seeking to amend tax law, apparently cancelling out taxes on the indirect transfer of Indian assets that took place before May 2012, according to Reuters.

But it is unclear whether this will be enough Vodafone Idea, one of the country’s three large mobile operators. Its shares were trading at 7.10 rupees on Friday, up on Thursday’s all-time low of 5.95. The shares peaked for 2021 at 13.65 on 15 January, but had been heading downwards ever since the merger of Idea Cellular and Vodafone India was completed in 2018.

The Friday price gives the company a market cap of 203 billion rupees (US$2.73 billion).

Vodafone Idea, which operates as Vi, owes $6.74 billion in taxes following a recalculation by the Department of Telecom (DoT) for the taxes on the basis of adjusted gross revenue (AGR). Its rival, Bharti Airtel, owes $4.7 billion.

Earlier this week Kumar Mangalam Birla (pictured) stepped down as executive chairman of Vodafone Idea. His company, the Aditya Birla Group, owns 27% of Vodafone Idea following the merger with Vodafone India.

In June he offered the Indian government the opportunity to take over the whole of that 27% stake, or to transfer it to other hands.

Tarun Bajaj, revenue secretary at the ministry of finance in New Delhi, said in a television interview: “This decision [on back taxes] helps to clarify our position with the investors.” But he implied that Vodafone and other companies would have to withdraw litigation against the Indian government.

Nick Read, CEO of Vodafone Group, said last month that the UK-based company would not put any more investment into Vi, of which it owns 45%.

Vodafone has already written off the investment, which dates back to 2007, when it spent $11.1 billion on a 67% stake. Four years later it bought the rest of $5.46 billion.

According to the Telecom Regulatory Authority of India (Trai) Reliance Jio has a 35.3% market share, compared with Bharti Airtel’s 29.6% and Vodafone Idea’s 24.6%. Both Bharti Airtel and Vodafone Idea were created through a series of mergers after Jio entered the market five years ago with a modern, 4G-only network offered at low prices.

 

 

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