Why SC’s clarification on AGR dues is a big lifeline for Vodafone Idea

SC clarification

The clarification follows a Supreme Court order from October 27, which limited relief to Vodafone Idea for additional AGR dues up to FY17. The Department of Telecommunications (DoT) had raised an extra demand of about Rs 5,600 crore for that period. Overall, Vodafone Idea’s total AGR dues amount to around Rs 83,400 crore.

The clarification is significant as the telco would not have received enough financial benefit if the relief was restricted only to the additional AGR demand, which is around Rs 5,600 crore.

Vodafone Idea had earlier filed a petition on September 18, asking the Court to cancel the additional AGR demand and instruct the government to recheck and reconcile all AGR dues up to FY17.

Post the Supreme Court’s oral observation Monday, the company’s scrip jumped nearly 10%.

Vi is among the three privately-owned telecom operators in the country, with the government seemingly intent on keeping India’s telecom ecosystem a three-horse race. However, Vi’s precarious financial situation raises concerns about its longevity in the market.

The Indian government also has a vested interest in keeping the telecom company afloat, given that it now owns close to 49 per cent of beleaguered telecom operator. This is after the company received another lifeline from the Centre, which converted an additional Rs 36,950 crore worth of the company’s dues into equity. The government is the single largest shareholder in Vi.

The AGR tangle

Of the Rs 83,400 crore AGR dues that Vi owes to the government, annual payments of Rs 18,000 crore will start next March. Including penalties and interest, its total liabilities to the government are estimated at around Rs 2 trillion.

With such a heavy cash burden and declining revenues and subscriber base, the company may not have enough cash flows to pay the dues. Hence, the direction from the Supreme Court to reassess all AGR dues is a big boost for the company, which has been struggling to raise money from the market as investors stay away due to its high AGR obligations.

In an earlier petition, the company had said that “without bank funding, (Vodafone Idea) will not be able to operate beyond FY 2025-26, as it does not have the ability to pay AGR instalment of approx. Rs.18,000 crore as per DoT demands due in March 2026”.

The company said that without this funding, its planned investments will not happen and any hopes of an improvement in its operational performance would be dashed.

“More importantly, the funds raised by (Vodafone Idea) will be utilised soon and the entire capex cycle will come to a halt. In such a case, the entire fund raising done over last 12 months and investments made so far by the company, as also the equity stake of the Government including the recent conversion, will lose value,” Vodafone Idea warned in its petition.

“It is impossible for the promoters or any shareholder to invest any more monies in the company. Since the (company) is unable to raise debt in view of precarious financials, if it is compelled to pay amount of Rs. 18,000 crore per year towards AGR dues for next 6 years, the Petitioner will not be able to survive and will face extreme financial stress,” Vodafone Idea added.

Government lifeline

The Indian government now owns close to 49 per cent of the telecom company, after it received another lifeline from the Centre, which converted an additional Rs 36,950 crore worth of the company’s dues into equity in March. Before this infusion, the government held nearly 23 per cent in the company. The government is now the single-largest shareholder in the telecom firm. Due to current legal obligations, the government had acquired these additional shares at a premium of more than 47 per cent at the time.

This was the second lifeline that the government has offered to the struggling telco. As part of its 2021 relief package for the company, the government in February 2023 had approved the conversion of Rs 6,133 crore of Vi’s interest dues into equity.

As on December 2024, Vodafone Idea’s total debt was around Rs 2.3 lakh crore. Of this, Rs 77,000 crore was AGR (adjusted gross revenue) liability and Rs 1.4 lakh crore is the spectrum liability.

The equity conversion was done for the company to be able to pay part of its spectrum dues to the government. Without the move, the company’s would have to pay around Rs 40,000 crore as a yearly instalment after the moratorium expires in September this year.