Stand came after weeks of industrialist Kumar Mangalam Birla had said it was ready to hand over its 27% stake in the crippled telco to “any entity – public sector/government/domestic financial entity” in the name of “national interest”.
Government sources said “many and strong logistical reasons” suggest an “outright rejection” of any proposal that puts the debt-laden and loss-making private entity within the ambit of state-owned companies, whose Has a poor track record of self-management. Businesses are mainly operating on the back of recurrent government bailouts.
“How can we even allow this. It’s almost like privatizing profits and nationalizing deficits?” a senior official said.
Birla’s call appears to be in line with what was suggested in a Deutsche Bank report. “…the only viable solution for the government is to recapitalize Vodafone Idea by converting its debt into equity, preferably, while merging with BSNL, and then giving it a clear commercial mandate based on profitability targets and incentives,” It said in one. Recent note.
Deutsche Bank said that “if this happens, Vodafone Idea shareholders will suffer huge losses as government debt (telcos) has nearly six times the current market cap, and such a solution may be an acceptable outcome for shareholders.” ”
However, the numbers are stacked against such suggestions. Vodafone Idea, the third largest telecom operator with around 27 crore subscribers, is heavily in debt, owes Rs 96,300 crore in deferred spectrum payments to the government, while it is liable for Rs 61,000 crore for AGR liabilities.
There is an interest burden of thousands of crores on liabilities, bank debt of Rs 23,000 crore on the company. Its losses in the last two quarters have been over Rs 7,000 crore.
BSNL and MTNL, on the other hand, had to offer a Rs 69,000 crore revival package around 2019 to keep them afloat, and are still struggling to achieve profitability.
According to a reply by Minister of State (Communications) Devusinh Chouhan in Rajya Sabha on August 5, BSNL’s total liabilities at the end of FY11 were Rs 81,156 crore while that of MTNL was 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 could turn into an even bigger financial drain on the exchequer in the coming years, if the operations do not change,” said an official.
“In any case, instead of being so considerate for an incompetent private entity, the government can simply focus more on the combination of BSNL/MTNL and give more money to make them competitive and turn them around.”
NITI Aayog, which has been involved in the matter by the DoT, is also against the proposal. The government think-tank feels that any such measure could also lead to “value erosion” of Vodafone Idea, and thus not much is left in the deal for BSNLMTNL.
Some officials said cultural differences between the two entities were also factors that could make the merger “a definite failure”. “BSNLMTNL lacks an aggressive private sector stance, and their employees are aging and troubled by labor and union issues. Vodafone and Idea, on the other hand, were unable to manage their merger properly, which was one of the reasons behind the collapse of the combined company.
Another official said there are “many legal issues” that make this a difficult deal. “MTNL is listed and Vodafone Idea is also listed,” the official said.
Watch Government against merger of ailing Vodafone Idea with BSNL-MTNL
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