Vodafone Idea Crisis Deepens: Govt May Extend AGR Dues Amid Default Risk by 2028

The Indian government is currently addressing Vodafone Idea's (Vi) financial challenges, considering relief measures amid doubts about its long-term sustainability Even extending payment terms adjusted gross revenue (AGR) dues might not be enough, potentially leaving Vi unable to meet obligations beyond 2028-29.

Government officials have stated that while options like extending the AGR payment period from six to 20 years are being considered, they may not ensure Vi's viability past 2028-29. The Department of Telecommunications believes that if Vi must pay the full Rs 18,064 crore instalment by FY26's end, it won't have funds for FY27 liabilities.

Financial Struggles and Government Stake

In March, after a request from Vi, the government converted Rs 36,950 crore of spectrum arrears into equity, becoming the largest shareholder with a 48.99% stake. These arrears were linked to pre-2021 spectrum auctions. Despite this conversion, Vi's financial future remains uncertain.

Vi has shared projections until 2030-31, the Supreme Court's deadline for AGR dues payment. The government had previously granted a four-year moratorium on AGR and spectrum dues from FY22. Now, Vi must clear all arrears in six instalments starting this fiscal year.

Bleak Financial Outlook

Vi reported a net loss of Rs 7,166 crore in January-March, wider than the Rs 6,609 crore loss in October-December 2024. Its board has approved raising an additional Rs 20,000 crore through equity or debt and is in talks with lenders. However, its share price has dropped from nearly Rs 10 in January to Rs 6.7 recently.

"The group's ability to continue as a going concern is dependent on support from the DoT on the AGR matter," said auditor SR Batliboi & Associates. They also highlighted Vi's struggle to generate necessary cash flows to settle or refinance liabilities as they become due.

Potential Solutions and Challenges

The government has ruled out converting more arrears into equity beyond its current 49% stake in Vi. Other options being explored include allowing Vi to pay AGR-based arrears over an extended period of up to 50-100 years in a worst-case scenario.

An analyst tracking the telecom sector noted that while Vi can meet liabilities this fiscal year, it won't be possible starting FY27 without securing over Rs 25,000 crore loans from banks and financial institutions. Brokerage firm Motilal Oswal warned that without relief on AGR dues or successful fundraising efforts through debt, Vi could face an annual cash shortfall of Rs 20,000 crore.

At March's end, Vi's cash and bank balance totalled Rs 9,930 crore. The company had expressed its inability to meet post-moratorium payment schedules during meetings with the Department of Telecommunications (DoT). Its projected payment for FY26 was over Rs 30,500 crore before part of the dues was converted into equity.

The ongoing discussions highlight the complexity of ensuring Vodafone Idea's survival amidst mounting financial pressures and limited options for relief or restructuring its obligations effectively.