VIL unlikely to get more contingent liability mechanism funds from Vodafone

UK’s Vodafone Group Plc, co-promoter of (VIL), is not considering any further payments to the loss-making Indian telco under the contingent liability mechanism (CLM) put in place during the merger of Vodafone India and , citing uncertainties in specific conditions being fulfilled.

The UK headquartered company, in its preliminary results for fiscal year 2022, said that it sees no further outgo from the corpus of Rs 6,400 crore set under the mechanism as on March 31, 2022, as “significant uncertainties in relation to VIL’s ability to make payments (to Vodafone) in relation to any remaining liabilities covered by the mechanism”.

It added that cash-strapped VIL “remains in need of additional liquidity support from its lenders and intends to raise additional equity capital”. Considering the facts, “no further cash payments are considered probable from the group as at 31 March 2022”.

The CLM was agreed upon when the merger came into effect in August 2018. It states that both Vodafone Group and VIL would reimburse each other on set dates for certain identified pre-merger liabilities and assets that could crystallise in future.

Under the mechanism, Vodafone Group infused Rs 1,900 crore in VIL in FY21. Including that, Vodafone Group’s total exposure through the CLM was Rs 8,400 crore.

Debt-laden VIL has not posted a profit in any quarter since the merger and has rapidly lost subscribers, while its debt has ballooned to over Rs 1.96 lakh crore at March end, forcing it to the brink. The government’s relief package announced last September has given it some breathing space, and it has been in talks with potential investors to raise Rs 10,000 crore and also with lenders to ease repayment terms.

In March this year, VIL raised Rs 4,500 crore from its promoters where Vodafone Group put in Rs 3,375 crore and the rest came from the Aditya Birla Group. The funds raised were used to settle amounts due to


Tuesday, the Vodafone Group also clarified that Indus has been classified as “held for sale in the condensed consolidated statement of financial position since 31 March 2021 and the group’s share of Indus’ results is not reflected in the group’s consolidated income statement for the year ended 31 March 2022”.

In February and March, Vodafone Group sold 7.1% of its stake in Indus Towers—2.4% via a block deal and 4.7% to Bharti Airtel—raising some Rs 3,831. The UK major said it invested Rs 3,375 crore of the proceeds by subscribing to newly-issued VIL equity, which VIL immediately used to partially settle outstanding payments to Indus Towers. “This transaction resulted in an equivalent partial release of the primary pledge, with the remaining INR 4.4 billion proceeds of the share disposal remaining secured for further utilisation by Indus Towers.”

After the share sales, Vodafone retains 567.1 million shares, or 21%, in Indus and the company said it continues to be in discussions with several interested parties to sell its balance holding.

Vodafone Group also reiterated that it is likely that it has “no present obligation” as of March end from India’s retrospective tax amendment in 2012 but is still unclear whether New Delhi will withdraw its challenge to an earlier arbitration award the telco had won.

This is related to the long-standing tax dispute with India, which had claimed Rs 22,000 crore from the telco for not withholding taxes on its 2007 deal to buy 67% in Hutchison.

India last August brought a bill to repeal the tax amendment passed in 2012, under which New Delhi demanded withholding taxes from Vodafone with retrospective effect. The law overturned an SC order, which had backed the telco’s stance that no tax was payable, pushing the company to seek international arbitration in 2013. It won a favourable order in 2020, which India has challenged in Singapore.

But to settle this outstanding issue, India has promised to refund taxes already collected and withdraw all litigation and arbitration. In return, companies have to give an undertaking that they will withdraw litigation in all forums and will forgo any damages, interest, or other costs.


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