Shares of India’s second largest telco, Vodafone Idea, dropped by 26 per cent in one session on Friday, as the Indian government rejected calls for a financial relief package.
Vodafone Idea’s share price tumbled from INR6.00 to just INR4.45 on the news that India’s Supreme Court had rejected a petition by the country’s mobile network operators to contest its ruling that they must pay billions of dollars of dues to the Department of Telecoms.
Late last year, India’s Supreme Court ruled that the country’s telcos must recalculate their adjusted gross revenues (AGR) – a metric used to calculate the amount owed to the Department of Telecoms for a range of services and spectrum usage charges.
The ruling saddled India’s cash strapped telcos with around $13 billion of new debt, which had to be settled within three months.
Both Bharti Airtel and Vodafone Idea have since announced plans to raise finance to pay down a part of the dues, but they had been hoping for a reprieve to be granted an extended payment terms to be offered.
Both stakeholders in the Vodafone Idea joint venture have publically stated that they are not prepared to inject any new capital into the business, meaning that Vodafone Idea could be headed for insolvency.
“With Aditya Birla and Vodafone groups unwilling to infuse equity in Vodafone Idea, we see a strong possibility of Vodafone Idea going for bankruptcy,” analysts at Credit Suisse said in a statement to the press.
“The probability of India transitioning to a two mobile-operator market has increased considerably,” it added.
This time last year, Vodafone Idea’s share price stood at INR19.84 but has plummeted as the JV struggles to cope with the ultra-competitive market conditions of India’s telecoms sector.