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India’s Supreme Court Agrees to Hear Vodafone’s Plea Over Payments

Upmanyu Trivedi, P R Sanjai and Ragini Saxena

(Bloomberg) -- India’s top court rejected a plea by mobile carriers seeking more time to settle billions of dollars in back-fees, threatening to push Vodafone Group Plc’s beleaguered local venture to the brink weeks after it warned of a potential collapse.

The Supreme Court’s three-judge panel, headed by Arun Mishra, said Friday that operators including Vodafone Idea Ltd. and Bharti Airtel Ltd. -- owing a total of $13 billion in dues for spectrum and licenses -- must deposit the dues by March 17. Shares of Vodafone Idea plunged.

In its October verdict, the top court upheld the way the government calculated fees using a formula disputed by the companies, and in January, it rejected their petition to reconsider the order. On Friday, the court also initiated contempt proceedings against the firms for failing to comply with its order to pay the dues by Jan. 24.

The stunning setback now leaves few options for Vodafone Idea, which needs to pay $4 billion, the highest among its peers, even as it struggles to stem record losses and rein in net debt that has ballooned to $14 billion. Highlighting its dire finances, Chairman Kumar Mangalam Birla said in December that the firm may be headed toward insolvency in the absence of any relief.

No Sense

With U.K.-based Vodafone having signaled it isn’t likely to plow any more money into the venture in which it holds 45%, it falls on the Indian partner and billionaire Birla to chart a future course for the teetering operator. “It doesn’t make sense to put good money after bad,” Birla said Dec. 6.

“There’s zero hope for Vodafone idea,” said Neerav Dalal, an analyst at Kim Eng Securities Pvt. in Mumbai. “Some relaxation by the Supreme Court would’ve got them some breathing space. They’re definitely not in a position to pay.”

A spokesman for Vodafone Idea in Mumbai offered no immediate comments after the verdict.

Modi’s Challenge

A collapse of a top wireless operator and the accompanying job losses would be another embarrassment for Prime Minister Narendra Modi, who rode to power promising employment opportunities for the country’s youth. On Modi’s watch, Jet Airways India Ltd. grounded its planes last year after buckling under debt. The airline, once the nation’s largest, is now facing bankruptcy.

Vodafone Idea’s woes highlight the struggle Indian telecommunications companies have faced in a market plagued by high spectrum and license fees, frequent policy flip-flops and endless tax demands.

As more than a dozen operators jostled for a slice of the world’s second-biggest market by subscribers, frequent price wars weighed on the earnings of companies that were spending billions of dollars on their networks.

Jio Storm

In 2016, the entry of billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd. pushed others to the edge. Jio’s free calls and cheap data forced two into bankruptcy, prompted some -- like Vodafone’s India unit and Idea -- to merge and many to pack up. Two non-state carriers -- Bharti Airtel and Vodafone Idea -- survived the war, while Jio came out on top.

Vodafone Idea has been losing millions of subscribers to Jio, which racked up more than 370 million users in about three years.

Even if Birla decides to revive Vodafone Idea, getting the capital to claw back those lost users will be a hurdle.

“The challenge is where will the money come from to survive and expand,” Kim Eng’s Dalal said before Friday’s ruling. “They’ve got to think something out of the box to come out of this.”

Shares of Vodafone Idea sank as much as 19% on Friday in Mumbai, extending their losses in the past year to 81%.

Catch-22

The dispute between the government and the operators over the calculation of fees has meandered through India’s legal system for years. The court decided to reject the pleas for extra time despite the Modi administration’s willingness to negotiate the terms of payment in the wake of Birla’s warning.

Stripping out interest from the dues or a staggered payment are some ideas the government can discuss, an official with knowledge of the matter said last month, asking not to be identified citing rules.

“It is a Catch-22 situation,” said Arun Kejriwal, director at KRIS, a Mumbai-based investment advisory firm. “The government can neither upset the Supreme Court nor allow Vodafone Idea to collapse.”

Facing a $3 billion bill itself, Bharti Airtel sold shares and convertible bonds to help raise the amount last month. Although Bharti Airtel -- which counts Singapore Telecommunications Ltd. among its main investors -- is also weighed down by net debt of about $16 billion, investors are betting on better prospects for recovery in a market left with fewer carriers after the consolidation.

Highlighting their confidence, shares of Bharti Airtel rose as much as 4.6% Friday to a record, doubling in value in the past year. A spokesman for the company didn’t comment immediately.

To contact the reporters on this story: Upmanyu Trivedi in New Delhi at utrivedi2@bloomberg.net;P R Sanjai in Mumbai at psanjai@bloomberg.net;Ragini Saxena in Mumbai at rsaxena30@bloomberg.net

To contact the editors responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net, Bhuma Shrivastava

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