‘Vodafone’s arbitration win unlikely to trigger any fresh investments in Vi’


KOLKATA: Vodafone Group Plc’s win in the international arbitration against India in a retrospective tax case does not change local joint venture Vodafone Idea’s weak ground situation and is unlikely to trigger fresh investment momentum, even from its British parent, said analysts.

They said the Vodafone Group won’t see any fresh money come in, nor will the win lead to any material improvement in the struggling Indo-UK telecom joint venture’s financial situation.

Nitin Soni, senior director at global ratings agency, Fitch, said “Vodafone Plc benefits from the victory in the international arbitration case in the Netherlands, but that outcome has no bearing on Vi’s operation, in that, it does not make Vi a stronger company or a better investment opportunity for global investors”.


Ahead of Vi’s fund-raise, potential global investors, he said, would be more keen on the telco sharply raising tariffs soon to be able to double average revenue per user (ARPU) — a key performance metric–to invest meaningfully in network capex, especially as the telco’s current Ebitda (or operating income) levels are insufficient to even meet interest costs.Vodafone Group Plc on Friday won a decade-long battle in the Permanent Court of Arbitration in The Hague against the Indian tax department’s demand of Rs 20,000 crore, stemming from its entry into the country in 2007.

And earlier this month, the board of Vi — the Indo-UK joint venture between Vodafone Group and the Aditya Birla Group — had approved raising a maximum of Rs 25,000 crore through a mix of equity and debt instruments in one or more tranches, even as the cash-strapped telco seeks funds to bolster its 4G network for competing more effectively with Reliance Jio and Bharti Airtel and also pay its Rs 50,400 crore adjusted gross revenue (AGR) dues.

Rajiv Sharma, research head at SBICap Securities, said Vodafone Group’s victory in the international arbitration case “is sentiment-positive, but is unlikely to prompt it to inject any fresh capital into Vi, since merely a tax overhang has been addressed with no cash actually coming into the British telco”.

Vodafone Group has earlier indicated in its FY20 earnings statement that “it has not recorded a provision in respect of the retrospective provisions of (India’s) Income Tax Act, 1961(as amended by the Finance Act, 2012), and any tax demands based upon such provisions”.

To be sure, though, some analysts say Vodafone’s win in the tax case is a positive development, in the aftermath of clarity around AGR dues payment timelines and should also improve perceptions and enthuse investors to participate in Vi’s ambitious fund-raising plans.


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