Vodafone Idea’s auditors may take call on writing off its assets soon
A reduction in the value of assets could affect the company's ability to raise funds.
“A call will have to be taken whether all the India assets will have to be stated at their fair market value,” one of the people told ET. The management for now has assured that there would be some improvement by next quarter, he said. “The company has told its auditors that there would be some cash flows in the coming months and clarity around royalty payments to the UK parent as well.”
The fair market value will capture only the physical assets that could be liquidated, leaving intangibles such as goodwill worthless.
Vodafone Idea has to pay the government an estimated Rs 44,000 crore towards past licence fees, spectrum usage charge, interest and penalties after the Supreme Court recently expanded the definition of adjusted gross revenue, based on which the levies are calculated. This has worsened the situation for the loss making company that was sitting also on Rs 1.02 lakh crore of net debt at the end of September. A reduction in the value of assets could affect its ability to raise funds. Vodafone, the UK telecom company that holds a 45% stake in Vodafone Idea, has already written off most of its India assets.
SR Batliboi & Associates, a network firm of EY India, audits Vodafone in the country.
Vodafone Idea and EY India did not respond to ET’s emails seeking comment until press time Friday.
The management of Vodafone Idea in the last one week has assured the auditors that they hope to see some cash flow and expect the government to take a “benevolent” view on the arrears.
On Thursday, the company reported revenue of Rs 10,440 crore and an operating income of Rs 3,347.1 crore for the September quarter. It posted a net loss of Rs 50,900 crore after making provisions for the dues.
The auditors have come out with a lot of caveats in the most recent financial statements, but not treated the business to liquidation valuation, the people said.
“It (doing liquidation valuation) will be like signing a death warrant for any company, as after such a stand who would lend to the company or have any financial transaction,” the second person said.
Industry trackers said the auditors would be forced to take this stand if there is no change in the situation in the coming months. “An asset in the book of Vodafone UK and Vodafone India cannot have different accounting treatment. At some point the company and its auditor will have to take a call,” an audit expert said.
ET reported this week that the Aditya Birla Group would not infuse any fresh equity into Vodafone Idea, and let it opt for insolvency if the government did not provide relief on the telco’s AGR-based dues.
The Birla Group’s decision mirrors that of the UK parent. Vodafone Group CEO Nick Read said that without any government relief, the future of the India JV was in doubt, and that the global telco would not be infusing any further equity into the venture.
Vodafone Idea and Bharti Airtel have appealed for urgent relief from the government, including a waiver of interest and penalties on the AGR-related dues, lower taxes and levies, and a moratorium on spectrum payments. They are also planning to file a plea seeking a review of the court’s verdict.