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Google's Rs 836 crore lifeline for Vodafone Idea

By Dev Chatterjee
May 29, 2020 14:17 IST
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Though Google's investment is minuscule and will not move the needle, it will attract other investors to the company and be a morale booster.

Pursuing Vodafone Idea would potentially pit Google against Facebook and an increasingly dominant Jio.

Global technology giant Google is in talks to buy a 5 per cent stake in Vodafone Idea, owned by Vodafone Plc of the UK and Aditya Birla Group.

The move comes about a month after Google’s biggest rival, Facebook, picked up a 9.99 per cent stake in Reliance Industries’ (RIL’s) Jio Platforms for Rs 43,574 crore.

 

Taking into account Vodafone Idea’s market valuation of Rs 16,724 crore as of Thursday, Google may end up buying the stake for Rs 836 crore.

The Financial Times reported on Thursday that Google’s parent firm, Alphabet, had also held talks with RIL to acquire a stake in Jio, but lagged behind other investors like Facebook in securing a deal.

A banker in Mumbai said Google was seeking a large stake in Jio, but could not get it.

“Pursuing Vodafone Idea instead would potentially pit Google against Facebook and an increasingly dominant Jio, but the company could also make multiple investments in India,” the report mentioned.

Vodafone Plc and Aditya Birla Group own 44.39 per cent and 27.18 per cent stake, respectively, in Vodafone Idea, and have valued their stake in the company at zero.

Both partners have also frozen any fresh investment into the firm in view of its huge losses and liabilities.

When contacted, a spokesperson for Aditya Birla Group declined to comment.

Earlier this month, Vodafone Plc attributed its losses in Vodafone Idea to the adverse legal judgments by the Supreme Court.

Besides, the British company said it would have an additional potential exposure of Rs 8,400 crore for the contingent liabilities of the Indian telecom company.

Analysts said the transaction could prove to be a lifeline for Vodafone Idea, which has been ordered by the Supreme Court to pay Rs 53,000 crore in adjusted gross revenues dues to the government.

“Though the Google investment is minuscule and will not move the needle, it will attract other investors in the company and be a morale booster,” said a banker.

In the past one month, five global players - Facebook, General Atlantic, Silver Lake, Vista Equity Partners, and KKR - have together picked up a 17.12 per cent stake in Jio Platforms for a total consideration of Rs 78,562 crore.

RIL is planning to list Jio Platforms on Nasdaq so as to attract global investments into the country.

"We think unless Google (or any other external investor) looks at acquiring a controlling stake in VIL, the chances of company's longer term survival beyond FY23 (when the moratorium on deferred spectrum debt ends) appear to be low," said an analyst in Credit Suisse.

"However, we believe that any such investment from a global tech company such as Google could potentially make it easier for VIL to raise capital in the future...," said Goldman Sachs.

The adjusted gross revenue (AGR) situation still remains uncertain, and could potentially add as much as 50 per cent to Vodafone Idea's existing net debt of $14 billion.

In such a scenario, the telcos' ability to generate investor interest is unclear, unless there is complete transparency on its regulatory liabilities, it added.

The existing high balance sheet leverage suggests VIL would need at least $10 billion of incremental capital for net-debt-to-EBITDA (earnings before interest tax depreciation and amortisation) to fall to a level that is in line with global telco peers, in the coming years, it observed.

A stronger balance sheet could help Vodafone Idea arrest its market share decline in the wireless market, potentially reducing overhang on tower stocks too, the Goldman Sachs note said.

With additional inputs from PTI

Photograph: Adnan Abidi/Reuters

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Dev Chatterjee in Mumbai
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