For Vodafone Idea, a telecom operator weighed down by years of debt and regulatory dues, the government’s latest move offers breathing space, but not a clean slate.

In a stock exchange filing on Friday, Vodafone Idea said the Centre has capped its annual payouts to clear past dues at Rs 124 crore for the next six years, easing immediate pressure on cash flows.

Between March 2032 and March 2035, the yearly outgo will be reduced further to Rs 100 crore, based on a communication from the Department of Telecommunications (DoT).

The company added that the remaining adjusted gross revenue (AGR) dues will be paid in equal annual instalments over six years starting March 2036.

This follows a December 31 decision by the Union Cabinet approving a partial moratorium on Vodafone Idea’s past dues, freezing them at Rs 87,695 crore for the period from 2031-32 to 2040-41.

The amount is subject to reassessment by a committee after an audit. Markets reacted swiftly. Vodafone Idea shares rose as much as 9 per cent in morning trade after details of the revised payment schedule emerged.

Gains, however, were pared by afternoon as analysts flagged concerns over funding needs for 5G expansion. The stock ended the day at Rs 11.27 on the BSE, down 2 per cent.

The relief measures, approved on December 31, were framed to protect the government’s interest, it holds about a 48.9 per cent stake in the telco, while ensuring orderly payment of spectrum auction charges and AGR dues.

The Cabinet also cited the need to preserve competition in the telecom sector and safeguard the interests of Vodafone Idea’s 20 crore subscribers. AGR dues refer to payments telecom operators owe the government based on adjusted gross revenue.

This includes not just telecom earnings but also non-core income such as interest, rent, and asset sales. A change in this definition, upheld by the Supreme Court in 2019, led to massive liabilities for the industry, hitting Vodafone Idea the hardest.

Apart from the frozen dues, AGR liabilities for 2017-18 and 2018-19, finalised following a Supreme Court order in September 2020, remain unchanged. These will be paid between 2025-26 and 2030-31, amounting to Rs 124 crore annually, the company said.

Vodafone Idea’s troubles are long-running. Intense price competition, heavy debt, and the AGR blow have left it reporting losses, losing subscribers, and struggling to invest in network upgrades, even as rivals pushed ahead with 4G and 5G rollouts.

Government support, including earlier equity conversion of dues, has kept the company afloat. But its future still depends on policy backing, fresh capital, and better operating performance.

Some had hoped the Cabinet would waive a part of the AGR dues. Instead, it opted for a moratorium, allowing the company time to recover.

Under the revised plan, Vodafone Idea will pay the government Rs 1,144 crore over the next 10 years. The balance of the AGR dues, frozen at Rs 87,695 crore, will be paid from March 2036 onwards.

The company clarified that the entire AGR liability, comprising principal, interest, penalty, and interest on penalty for the period from 2006-07 to 2018-19 as of December 31, has been frozen and will be paid in multiple tranches.

The relief changes the picture sharply. Without it, Vodafone Idea would have had to pay around Rs 18,000 crore by March 2026 and a similar amount every year for the following six years.

In a letter to the DoT earlier this year, the company said its total liabilities to the government stand at about Rs 2 lakh crore, including Rs 1.19 lakh crore in spectrum dues.

It warned that without support, the Centre would face losses through unrecovered spectrum dues, erosion of equity value worth Rs 53,083 crore, and no recovery of AGR dues.

Vodafone Idea’s annual liabilities have been more than double its operating cash generation, which has ranged between Rs 8,400 crore and Rs 9,200 crore over the past three years.

The company said a DoT-appointed committee will reassess the AGR dues, and its decision will be final. “Thereafter, the reassessed amount is to be repaid between March 2036 and March 2041 in equal annual installments,” the filing said.

Analysts expect the reassessment to lower the AGR burden and improve Vodafone Idea’s ability to raise funds. The company has been seeking Rs 25,000 crore in debt to invest in its network.

“In our view, this could fast-track the completion of Vi's Rs 250 billion (Rs 25,000 crore) bank debt raise and potentially enable another equity raise down the line. Besides meaningfully lifting concerns on Vi's ability to service government dues and therefore on its ability to continue as a going concern, these should also enable the company to revive its network investments,” a Citi report said.

Ambit Capital echoed that view, saying government action and possible gains from reassessment could help Vodafone Idea secure bank funding needed for survival capex.

The brokerage noted that a favourable Supreme Court verdict had already allowed the company to raise Rs 3,300 crore through non-convertible debentures.