How Can Telecom Relief Package Will Help Vodafone-Idea From Bankruptcy?

The government has finally cleared a relief package for the telecom industry. The new package is expected to help Vodafone-Idea from bankruptcy, thanks to a four-year moratorium in annual payments of dues that might help the telecom operator to maintain the cash flow and survival chances.

Analysts On Telecom Relief Package

However, analysts believe that Vodafone-Idea is likely to face challenges as interest will add to the entire debt of Rs. 1.9 lakh crores. The analysts added that the situation can be better in case Vodafone-Idea manages to raise funds close to Rs. 25,000 crores and make some investment in 4G networks.

"The four-year moratorium on statutory payments definitely allows Vi to survive and avoid a bankruptcy as it promises relief on the cash flows front," Nitin Soni, senior director at the global rating agency, Fitch was quoted by ET.

For the unaware, Vodafone-Idea has to clear Rs. 1.9 lakh crore of dues, where the telco has to pay Rs. 1.6 lakh crore to the government. However, its financial condition is affecting the overall performance of the telecom operator.

"The four-year moratorium on statutory payments would allow Vi to defer around Rs. 36,000 crores in AGR payouts and Rs. 60,000 crore of deferred spectrum liabilities till FY26, although the telco would need to book interest that will accrue from this year onwards at MCLR (marginal cost lending rate) + 2 percent, amounting to roughly 8 percent, which will add to its debt," an analyst quoted by the newspaper

Provide Relief To Telecom Operators

Meanwhile, industry body COAI said that the government took a bold decision for the telecom sector and all steps will provide relief to the financially stressed sector. In addition, these steps will boost investment and healthy competition in the sector.

It is worth noting that these reforms are expected to make Reliance Jio and Airtel stronger than Vodafone-Idea as formers have a good balance sheet. In addition, Airtel has huge plans to raise money.

The telecom operator is raising Rs. 21,000 funds to clear its debt and to make an investment in the 5G network. Besides, Reliance Jio is leading the sector and is all set to bring a new smartphone in November.