KM Birla's resignation as Vodafone head brings down market cap by Rs 2,700 cr
- Vodafone-Idea suffered a loss of more than Rs 2,700 crore in market cap on Wednesday
- Vodafone Idea that was trending around Rs 8 till about August 3
- It witnessed a sharp dip on August 4 at Rs 6
Vodafone-Idea, struggling to clear Average Gross Revenue (AGR) dues of over Rs 50,000 crore - suffered a loss of more than Rs 2,700 crore in market cap, a day after a letter by Kumar Mangalam Birla offering to step down as Non-Executive Director and Non-Executive Chairman of the Board - written in June to Cabinet Secretary Rajiv Gauba - was made public. Vodafone Idea on Wednesday confirmed that the company's board of directors have accepted Birla’s request.
KM Birla will cease to be a director and non-executive chairman of the company at the end of business hours on Wednesday, VIL said in a filing to the stock exchanges. It did not give any reason for Birla's decision. Himanshu Kapania, who was earlier managing director and CEO of Birla's Idea Cellular, will take over as the new chairman of Vodafone Idea Ltd.
Vodafone Idea has declined to comment on why Birla sought to step down, and representatives at the Aditya Birla Group did not immediately respond to an email from Reuters. The shares of the company, which has around 270 million wireless subscribers, slumped around 40% in the past three sessions alone.
Vodafone Idea that was trending around Rs 8 till about August 3 witnessed a sharp dip on August 4 at Rs 6, soon after Birla’s letter was made public. The sharpest slump was seen on Thursday morning at Rs 4.6. However, at the time of markets closing, the shares limped back to Rs 6.
In a letter that warned of a "looming crisis", Birla had also offered to transfer his 27.66% stake in the debt-laden telecom major to "any public sector/government/domestic financial entity, or any other the government may consider worthy, - to keep (VIL) going", reported PTI, quoting Birla’s letter.
Birla, in his letter, highlighted that the VIL's financial condition had "sharply deteriorated" despite all efforts to “improve operational efficiency".
Birla’s letter also highlighted the urgency to intervene. "... Without immediate support from the government... by July 2021... VIL's financial situation will (reach) an irretrievable point," he said, adding that investors were not willing to invest in the company in the absence of clarity on AGR liability, an adequate moratorium on spectrum payments, and floor pricing regime above the cost of service.
Potential (non-Chinese) investors, he said "want to see clear government intent to have a three-player telecom market... through positive actions on long-standing requests…” and that without this assurance investors are displaying "understandable hesitation".
Vodafone-Idea dues and the Supreme Court ruling
After the computation of adjusted gross revenues (AGR), Vodafone Idea's balance payment exceeded Rs 50,000 crore, according to the Department of Telecom. Bharti Airtel, however, owed more than ₹ 43,000 crore as AGR dues. The Supreme Court, which had earlier set the January, 2021 deadlines for these companies, gave 10 years until 2031 to clear the dues. The two companies had moved the top court, claiming that there were errors in the government's calculations of dues. The court rejected the plea.
How is the revenue calculated
The government charges license fees, which is a percentage of their total earned revenue, from the telecom companies. According to the companies, the fee structure should be based on the percentage of revenue earned from their core business and not non-core businesses such as rent, income from sale of handsets or roaming charges.