Government opposes merging Vodafone Idea with BSNL-MTNL

Rumored much since sometime, but multiple sources now clarify that the government is against the merger of Vodafone Idea with state-owned BSNL and MTNL.

The news floated around some weeks after industrialist Kumar Mangalam Birla stated to “to hand over” his 27% stake to “any entity — public sector/government /domestic financial entity” in the name of “national interest”.

Government sources asserted that “multiple and strong logical reasons” suggest “outright rejection” of any proposal that gets the debt-laden and loss-making private entity within the fold of the state-owned companies, which themselves have a poor track record of managing their business and are operational mainly on the back of recurrent government bailouts.

A senior officer further declined it by saying “How can we even allow this. It’s almost like having privatization of profits, and nationalization of losses?”

Moreover a recent note stated that – Birla’s statement synced with a suggestion made in a report of Deutsche Bank. It concluded that the ultimate solution lies in the hands of government by recapitalizing Vodafone Idea and conversion of its debt into equity, which might be possible by merging it with BSNL, and later providing a clear commercial mandate clarifying profitability targets and incentives.

Deutsche Bank further stated that if this happens, the shareholders of Vodafone would be heavily diluted as government debt is nearly six times their current market-cap, offering such a solution would be an acceptable outcome for shareholders.

But the numbers are quite disturbing to support such suggestions. Being the third-largest telecom operator with around 27 crore subscribers, Vodafone Idea is facing heavy debt, owing Rs 96,300 crore to the government in deferred spectrum payments, and also being responsible for Rs 61,000 crore towards AGR liabilities.

Not only this, but the liabilities are accompanied with interest of thousands of crores, as the company has another Rs 23,000-crore bank debt. Considering the losses in the previous two quarters the company had incurred an excess loss of Rs 7,000 crore.

As a support, BSNL and MTNL had to be handed out a Rs 69,000-crore revival package around 2019 to help them survive, who are still finding it difficult to cross the break even.

As per the statement on August 5 by Devusinh Chauhan -minister of state, in Rajya Sabha, total liabilities of BSNL stood at Rs 81,156 crore at the end of FY21 while MTNL’s at Rs 29,391 crore.

An officer stated that “It will be a financial mess if all the struggling entities are brought together and merged. What purpose does it serve? In fact, if their operations are clubbed, it may turn into an even-bigger financial loss on the exchequer in the coming years if the operations do not amplify in terms of profit.”

“In any case, instead of being so considerate for an inefficient private entity, the government may simply focus more on the BSNL/MTNL combine and give them more funds to make them competitive and turn them around.”

According to some of the officers, cultural differences between the two entities form the basis of the merger being “a sure failure”. As per their analysis “BSNLMTNL  fails to hold an aggressive private sector stance, and their employees are outdated, aged and stuck with labour and union issues. Whereas, Vodafone and Idea were unable to manage their own merger properly, this being the top reasons behind the joint company’s collapse.”

Other officer added that there are several legal issues that make the merger a difficult deal. “MTNL is listed, and so is Vodafone Idea.”

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