In a significant move to provide financial breathing room to the debt-strapped telecom operator Vodafone Idea, the Indian government has set a limit on its annual payments for clearing past dues. The company announced on Friday that the Department of Telecommunications (DoT) has capped the yearly payout at Rs 124 crore for the next six years, offering crucial near-term cash flow relief.
Details of the Revised Payment Schedule
According to a stock exchange filing by Vodafone Idea, the relief structure is multi-phased. The annual outgo will be reduced further to Rs 100 crore for the three-year period between March 2032 and March 2035. Following this, the remaining balance of the Adjusted Gross Revenue (AGR) dues must be settled in equal annual installments over a six-year span starting March 2036.
This decision follows the Union Cabinet's approval on December 31 for a partial moratorium on the company's past dues. The total dues have been frozen at Rs 87,695 crore, which was originally scheduled for payment from the financial year 2031-32 to 2040-41. It is important to note that this frozen amount will be subject to a reassessment by a committee based on an audit.
Market Reaction and Analyst Caution
The announcement of the detailed payment schedule initially sent Vodafone Idea's share price soaring by 9% during morning trading on the stock exchanges. However, the gains were largely erased by the afternoon session, with the stock eventually closing at Rs 11.27, down 2% on the BSE. This pullback reflects continued caution among market analysts regarding the company's substantial funding requirements for its crucial 5G network expansion and overall business revitalization plans.
Broader Objectives of the Government Relief
The relief measures sanctioned by the Cabinet are designed with multiple strategic objectives in mind:
- Protecting Government Interest: The government holds a significant 33% stake in Vodafone Idea following the conversion of past dues into equity.
- Ensuring Orderly Payment: To facilitate a structured and manageable repayment of spectrum auction charges and AGR dues to the national exchequer.
- Maintaining Market Competition: To prevent the telecom sector from becoming a duopoly, thereby ensuring healthy competition.
- Safeguarding Consumers: To protect the interests of Vodafone Idea's vast subscriber base of approximately 20 crore (200 million) users.
For context, AGR dues refer to the payments telecom companies owe to the government, calculated as a share of their Adjusted Gross Revenue. This revenue base includes all earnings, even from non-telecom sources like interest income, rent, and proceeds from asset sales, on which license fees and spectrum usage charges are levied.
