EXPLAINED | Why Kumar Mangalam Birla Resigned As Chairman of Debt-Ridden Vodafone Idea

Birla's decision to step down from debt-laden Vodafone Idea board comes after the Aditya Birla Group chairman wrote a letter to the Indian government last month.

Kumar Mangalam Birla. (File Photo)

Mumbai: Billionaire Kumar Mangalam Birla has decided to step down as Non-Executive Director and NonExecutive Chairman of the Vodafone Idea Board with effect from close of business hours on August 4, 2021.

Birla's decision to step down from debt-laden Vodafone Idea board comes after the Aditya Birla Group chairman wrote a letter to the Indian government last month offering to hand over his stake in Vodafone-Idea (Vi) to any public sector entity in light of the telecom operator's "looming crisis."

Birla, with a real-time net worth of $11.5 billion as of Wednesday, according to Bloomberg Billionaire Index, did not get any positive response from the government on accepting his offer.

Instead, the government is planning to come out with a relief package for the ailing telecom sector.

"The Board of Directors of Vodafone Idea Limited, at its meeting held today, have accepted the request of Mr. Kumar Mangalam Birla to step down...," said Vodafone Idea in a statement.

According to Birla, investors are unwilling to invest in the company until there is clarity on adjusted gross revenue (AGR) liability, an adequate moratorium on spectrum payments, and, most importantly, a floor pricing regime above the cost of service.

"It is with a sense of duty towards the 27 crore Indians connected by VIL, I am more than willing to hand over my stake in the company to any entity- public sector/government/domestic financial entity or any other that the Government may consider worthy of keeping the company as a going concern," stated Birla in his letter to Cabinet Secretary Rajiv Gauba.

Birla holds around 27% stake in Vodafone Idea Ltd., one of three private-sector competitors, left standing in a field of a dozen, is on the verge of collapsing under the weight of its $30 billion debt, including AGR dues of $6 billion.

India's Supreme Court last month rejected petitions by telecom companies seeking a reassessment of how much they owe the government, seeking relief in a $14 billion AGR dispute that threatens the survival of cash-strapped Vodafone Idea Ltd.

Deutsche Bank AG's telecom analyst Peter Milliken and associate Bei Cao in a research note titled, "Government needs to make a call – duopoly or state control of VI," laid out the stark choice facing what they describe as "the most painful market we have come across to operate a telecom."

However, the government maintained silence on the matter is unlikely to take Vodafone Idea under its fold as merging Vodafone Idea with loss-making BSNL would effectively mean the government is taking over the gargantuan Rs 1.8 lakh debt of the private operator, which will be majority-owned by Vodafone Plc.

A collapse of Vodafone Idea effectively creates a duopoly in the country of 1.4 billion people's wireless market, with Mukesh Ambani led Reliance Jio as the market leader and Sunil Bharti Mittal led Bharti Airtel as the second-largest operator.  

Vodafone Idea shares on Wednesday tanked 18.51% to Rs 6.03 in a firm Mumbai market, valuing the telco at Rs 17,327 crore. Investors have lost over Rs 22,000 crore in Vodafone Idea shares since January this year.