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Aditya Birla Group won’t face fund or bid curbs if Vodafone Idea faces bankruptcy: Bankers

When a company faces insolvency proceedings, promoters are unable to raise funds for other businesses, and also they are not eligible to bid for any bankrupt business under Section 29A of the Bankruptcy Act. With effect from December 1, guarantors to any insolvent business too face bankruptcy proceedings.

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Updated: Dec 09, 2019, 10.47 AM IST
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Last week, Aditya Birla Group chairman Kumar Mangalam Birla had said Vodafone Idea will have to shut shop in the absence of government relief after last month’s Supreme Court directive requiring the telecom giant to pay dues of Rs 40,000 crore in 90 days.
(This story originally appeared in on Dec 09, 2019)
MUMBAI: The Aditya Birla Group will not be denied bank funds or be barred from bidding for insolvent companies if Vodafone Idea were to default and enter bankruptcy proceedings as there were no corporate or promoter guarantees issued by the conglomerate to the telecom firm, say bankers.

When a company faces insolvency proceedings, promoters are unable to raise funds for other businesses, and also they are not eligible to bid for any bankrupt business under Section 29A of the Bankruptcy Act. With effect from December 1, guarantors to any insolvent business too face bankruptcy proceedings.

Of Aditya Birla Group companies, Grasim Industries has the largest stake of 11.6%, followed by Hindalco Industries (2.6%) in the telecom firm, which is not generating enough money to meet its liabilities. Overall, the Birla Group has a 18.5% stake, while Vodafone Group holds 53.6% in the company.

Given Vodafone Idea’s shareholding pattern, an insolvency proceeding against the company would not bar most Aditya Birla Group companies from being a bidder for other companies under the insolvency process.

Last week, Aditya Birla Group chairman Kumar Mangalam Birla had said Vodafone Idea will have to shut shop in the absence of government relief after last month’s Supreme Court directive requiring the telecom giant to pay dues of Rs 40,000 crore in 90 days.

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“It is true we will shut shop if we don’t get relief... because there is no company in the world that can pay that kind of fine in three months; it just doesn’t work like that,” Birla had said at an HT event. The chief of Vodafone’s UK parent, too, had voiced a similar feeling. Nick Read, Vodafone’s global CEO, had said that the joint venture may have to be liquidated, citing unsupportive legislation and excessive taxes. Vodafone Idea had reported the country’s highest loss of Rs 50,921 crore for the quarter ended September after the Supreme Court order. The company has a debt of over Rs 1 lakh crore.

Emkay Finance, in a research report last month, said that Grasim was under no obligation to bail out Vodafone. “According to our calculations, in the worst-case scenario, the impact (of Vodafone Idea) on Grasim’s stock price would be Rs 187 per share,” the report said.

According to a note by Edelweiss research, banks have approached Vodafone Idea for the payment of the outstanding debt due to covenant breach, but the company has declined it for now. There is no acceleration in the payment of bank debt yet. Since then, Vodafone Idea and Bharti Airtel have filed a review petition in the Supreme Court.

Lenders say that they have not yet taken a call on the action they will take should their guarantees on behalf of Vodafone to the government get invoked and they crystallise into debt. If lenders deny further funds, the likelihood of insolvency proceedings is high.

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