Can Vodafone Survive AGR Dues Hit? | NDTV Profit
Category
🗞
NewsTranscript
00:00Deepak Shenoy joining us now, founder and CEO at Capital Mind.
00:03Deepak, great to have you on the show as always.
00:06It was just going through some of your posts today on X on Vodafone.
00:11And, you know, the interesting thing that you also say
00:15is, can this really continue as a going concern?
00:19I think that's a big question on the mind of anyone who owns the stock,
00:23anyone who watches the space and market watchers as well,
00:26simply because the next relief seems to be only if they choose to convert government debt to equity.
00:35Yeah, but you know, Tamannaah, they can't even do that because beyond a certain point,
00:39this becomes a PSU. And the problem with the PSU isn't just that, it's the way they operate, right?
00:45Your hiring will change, the way you operate your company will have to change,
00:49because once you become a PSU, then you end up with a lot of restrictions on
00:54what you can do and what you can't do, your remuneration you pay to your employees,
01:00the diversity of your employees, all sorts of things will impact the way the business is run.
01:05So I don't think the government will want to become a 50% holder of this company,
01:10regardless of what it is. And, you know, they've had negative equity for a while.
01:15So if you look at the balance sheet, their equities are negative 100,000 crores,
01:19which means their accumulated losses have made them wipe out their equity, and they're down
01:26another 100,000 crores. And this is after raising like 20,000 crores or something that they raised
01:32recently. So I don't think at this point, you know, this is very comforting, because now they're
01:39going to actually have to pay this cash flow that has been accounted in the books, but they thought
01:43they'll get a relief in and for the third time running the Supreme Court has said no, we won't
01:48rethink the calculations. Deepak, what is fascinating about the way the stock has been
01:52behaving is how so much was being bet on the Supreme Court giving relief, when there were
01:59no signs of the same. In fact, enough evidence to the contrary that the Supreme Court was not
02:04interested in entertaining any kind of relook at the entire case. It was attempted with relooking
02:11the AGR dues that was thrown out, then they came back and they said, Okay, let's talk about how
02:15you've calculated the dues. Yet, a whole host of brokerages and research houses have come out
02:21and said, Okay, this could be a big boost. You know, sometimes the founders of the companies
02:29are more interesting companies, and you can't just go around saying things like, Oh, this company's
02:33dead. So it's, it's not fair. Also, I suppose, because nothing is dead until it's actually dead.
02:41You know, sometimes companies trade for three years after they're dead, like in Jet Airways case.
02:45So there's no way you can actually say that, you know, something isn't worth it or whatever.
02:50But, you know, in my case, I'm actually concerned with I'm on the buy side, I don't want to buy
02:55this stock. I'll buy their competitors, I own their competitors. So I'm biased in that sense.
03:00But the burden is so huge, it's 100,000 crores. To make this company have one rupee of equity,
03:08you have to infuse like 100,000 crores into it, which almost is like, you know,
03:12why wouldn't I just start a new company in this space directly, if I had to just infuse,
03:19I mean, if I had to just put in so much money just to get the company back to having a single,
03:25you know, rupee in positive equity. But the bigger issue now is the cash flow that comes
03:32from it's going to be 29,000 crores in FY25-26. And then for every year after that, for four or
03:40five more years, they're going to pay 43,000 crores to the government. Now you can't convert
03:45that meaningfully. I'll give you an example of what this means. 70,000 crores the current market
03:49cap. If they were to convert 29,000 crores to equity, the government would own about, I don't
03:56know, 40 or 50, nearly 40% of the company as, you know, they would dilute, they would give another
04:08greater ownership. And then the government already owns some 30% or something or 25%.
04:12They will end up owning, you know, 35-40%. And then the subsequent year, they have to convert
04:17another 40,000 crores. So I don't think this is feasible in the long term. This will, you know,
04:22end up with the government owning a bunch of shares, which has almost little or no value.
04:29Maybe the best thing for the government to recover its money is to sell whatever
04:32shares it has today. At least it'll get 10 rupees per share.
04:37So that, therein lies the hitch. This constant refrain, and this is at the end of it, right? I
04:45mean, we have learnt our lessons from Air India. And the government sort of pulled it along. We're
04:51sort of seeing that with SpiceJet as well. We had a statement today from the aviation minister
04:56saying that we can't let another airline go down. And that is the concern with Vodafone. I mean,
05:01investors today who are looking at Vodafone going up to 15 rupees, all the notes that are looking
05:06at it at the end of the day are banking that the government doesn't want to do a pulley.
05:10You will have to have a third player. Well, I don't know if not, wanting a third player
05:17means let an extremely, I mean, this is the Japan and Korea style of functioning, right? It's like,
05:23oh, you're bad, but because I don't want a monopoly or because of whatever other reason,
05:28I will let you survive. So even if you're a company that can barely run on its own legs,
05:33I will get some public sector bank to give you a loan and somehow you will survive.
05:38Why are we doing all this? It's like, you know, capitalism means companies die all the time.
05:43And it's when companies die that new companies are born. So if this company were to go bankrupt,
05:48somebody would be able to buy its assets at a very low price. That low price will be enough
05:52for someone to set up the next version of this company at a much lower initial cost, right?
05:58So if you don't have this 100,000 crore baggage to begin with, then maybe you can run this company
06:03with 10,000 or 15,000 crores of fresh equity. Yes, the government loses the money, but this
06:08company was going to go to zero anyway. Shareholders lose money, but shareholders have taken the risk.
06:13That's what they're going to be in there for. So let the shareholders go to zero,
06:17let the government maybe recover 5 or 10,000 crores or whatever little new loans that the
06:22banks have given can be adjusted. And maybe this company can be revived with a 25 or 30,000 crore
06:28package from another private company. Why do we want to protect it? It can still go through
06:31bankruptcy and come out with a new owner in a better resolution. I don't see why we can't do
06:38that. We can still have three players, but we can have three healthy players rather than two
06:41healthy players and one not at all healthy player. Deepak, good afternoon. Neeraj here,
06:47been a while, but they raised some equity capital at about 12, 13 odd or 11 and a half odd rupees,
06:54right? That institutional money came in thinking about resolution plan, which could make the
06:59company healthy because otherwise, why would people put in equity capital, GQG, for example?
07:04Now, are you saying therefore that this decision that has been not gone in the company's favor,
07:12if this hadn't played out this way, then do you reckon the company might have been
07:18a healthy third player? And is this the only reason? Or would you have believed that even
07:22otherwise the company was going down? Yeah, so I think there was a question of GQG investing
07:28about $400 million. $400 million is about 3,500 crores, that is chicken feed in comparison with
07:36100,000 crores they actually need. So I don't think this is a meaningful amount of extra money
07:41that they would have got. Of course, if the government's dues were brought down to, I don't
07:45know, 10, 15, 20,000 crores, or whatever the company actually wanted, then you would have
07:50had this situation where this money that they've raised from the public, which is 18,000 crores,
07:55the promoters, which is 2000 crores, plus these other people, maybe five or 10,000 crores more,
08:00that would have been enough to kind of keep the company afloat and running. In the absence of it,
08:05the government needs to get paid. That means next year in FY25-26, they need to pay,
08:12I think October of next year, roughly a year from now, they're going to have to pay 29,000
08:17crores to the government. Now, where are they going to get that money from? If they go raise
08:21it from equity capital, it's like, I'm sorry, I'm raising equity capital from you so that I can pay
08:25the government. It's all gone. I can't use it. So at some point, this starts becoming more difficult
08:32to imagine in terms of any other thing than a planned bankruptcy, if you may. A lot of things
08:41can happen. The promoter can infuse more capital. I don't know whether they want to. They've always
08:46said they won't, but recently they put in that 2000 crores. Vodafone has written this off in
08:50its books completely. In their books, they mention India as we've written it down to zero.
08:56So they are not intending to put in more money, and they don't think there's a hope for revival
08:59for their stake in the company. So unless they come back and say, we'll put in some money.
09:04I mean, so many of these, if conditions are to work for this company to survive as it is,
09:10isn't it better that they go through a planned bankruptcy and emerge with a resolution plan that
09:16involves maybe a change in owner and therefore a chance to live? You will still have the three
09:21players you need. So in a way, Deepak, what you're saying, let's put it out of its misery,
09:28because it's just going to get worse and worse on the other part of it becoming effectively a PSU.
09:33Does that make sense from an Indian perspective? I mean, I was looking at the Tri data today.
09:38BSNL has gained massively. BSNL has had a good month relatively, more than all of the private
09:44players. Does it make sense for an exchequer, for the government, for taxpayers, for the government
09:52to go out and bail out Vodafone? It's essentially turning out into a situation where they have to
09:56bail out Vodafone, isn't it? I mean, given that there is a solution that involves bankruptcy
10:02and a resolution plan through a bankruptcy, you can make it faster. We need to make our bankruptcies
10:08much faster. People drag them along, put them to court cases, take five or six years. In five or
10:13six years, Vodafone idea will not have any subscribers left. You have to do a really quick,
10:18well-managed bankruptcy process. If you could do that, why would you try to bail it out with
10:24taxpayer funds? It's a terrible way to use our money. We have better ways to do that.
10:30Because what you're going to do by bailing it out is just pay yourself. So in the sense of the
10:34government bought equity into Vodafone, all it would do is own more of a company which owes it
10:40money. Effectively, it converts its dues to equity. And then that becomes a little unfair.
10:47We can't manage a BSNL and make it profitable meaningfully. How are we going to make a BSNL
10:53plus an idea profitable? And then it continues to own 40,000 crores a year to the government
10:59every year for the next four years or something. I think that's something that it's not tenable.
11:06We should, at some point, the government will have to write down its debt. That's because
11:11the company simply cannot pay. But the new owner can come in without having all those
11:16past dues to worry about. And then you get a stronger player in the business. And make sure
11:21that the current two players can't bid for it. So that you still maintain a three person play.
11:28The bailout word does not really fit here. It is not so systemically important that the world
11:36will come crashing down if this company doesn't exist. So I don't think there's a need for a
11:40bailout. Yeah, so it doesn't need to be a bailout. If you want three players, let there be three
11:45healthy players. And what really is the way out? Planned bankruptcy is what Deepak Shanno is
11:51talking about. Thank you so much, Deepak. Always a pleasure to have you on the show and hope to
11:56have you back soon.