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Merger with BSNL-MTNL will lead to Vi’s further ‘erosion of value’: Niti Aayog

Both entities are loss-making and debt-laden. The merger may not do any good to either of the entities.

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'Total liabilities of BSNL stood at Rs 81,156 crore at the end of FY21 while MTNL’s at Rs 29,391 crore'

Multiple sources told a leading media house that the government is against the merger of crisis-laden Vodafone Idea with state-owned BSNL and MTNL. This comes after Kumar Mangalam offered to hand over his 27% stake in the company, to “any entity — public sector/government /domestic financial entity” in the name of “national interest”.

According to various sources, as reported by a leading newspaper, there are “multiple and strong logical reasons” that suggest “outright rejection” of any such proposal. Both of the companies are debt-laden and loss-making. The government-owned companies have a poor managing track record. They are mostly functioning on the government bailouts.

The media house quoted a senior officer, “How can we even allow this. It’s almost like having privatisation of profits, and nationalisation of losses?”

This comes after a recent report by Deutsche Bank that said, “…the only viable solution is for the government to recapitalise Vodafone Idea by converting its debt into equity, preferably, while merging it with BSNL, and then providing it a clear commercial mandate based on profitability targets and incentives”. The bank further added that “should this happen, Vodafone Idea’s shareholders would be heavily diluted as government debt is roughly six times the (telco’s) current market-cap, and such a solution might be an acceptable outcome to shareholders.”

But that is not what the data reflects. Vodafone Idea, despite being the third-largest telecom operator with around 27 crore subscribers, owes Rs 96,300 crore to the government in deferred spectrum payments. Apart from this, it owes another Rs 61,000 crore towards AGR liabilities.

Also, there is an interest burden that runs into crores. The company has another Rs 23,000-crore bank debt. All this could have been justifiable, but the company’s balance sheet is also in the red. For the last two quarters, it has made losses of more than Rs 7,000 crore each. It is a failing entity in all the senses.

BSNL and MTNL, too are not in a strong position themselves. The government of India announced a Rs 69,000-crore revival package in 2019 for BSNL and MTNL.  But they have so far failed to turn their Balance Sheet positive. Devusinh Chauhan, minister of state (communications), declared in Rajya Sabha on August 5 that the total liabilities of BSNL stood at Rs 81,156 crore at the end of FY21 while MTNL’s at Rs 29,391 crore.

“It will be a financial mess if all the struggling entities are brought together and merged. What purpose does it serve? In fact, if their operations are brought together, it may turn into an even-bigger financial drain on the exchequer in the coming years if the operations do not turn around,” an officer told the leading media house. “In any case, instead of being so considerate for an inefficient private entity, the government may simply focus more on the BSNL/MTNL combine and give them more funds to make them competitive and turn them around.”

NITI Aayog, which had been asked to resolve the matter, was also pessimistic on this issue. The body believes that it will lead to further “erosion in value” of Vodafone Idea.

Even when we do not consider the financial reasons, there are more reasons that will make this merger “a sure failure”. A senior officer told the leading media house, “BSNLMTNL lacks an aggressive private sector stance, and their employees are ageing and saddled with labour and union issues. On the other hand, Vodafone and Idea couldn’t even manage their own merger properly, which was among the reasons behind the joint company’s collapse.”

(With Inputs from ET)

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telecom sector Vodafone idea niti aayog