The incumbent telecom firms should be prepared for the worst case scenario in the Adjusted Gross Revenue (AGR) issue; though they can still file a curative petition, the probability of resolution remains bleak.

“Though they can still file a curative petition, the probability of resolution remains bleak,” a report by ICICI Securities said.

Bharti Airtel has already raised capital of $3 billion, which should help it meet the burden. But the same remains a Herculean challenge for Vodafone Idea Ltd – a challenge that cannot be resolved without government intervention, the report said.

Also read: Supreme Court dismisses telcos plea seeking relief from AGR dues of ₹1.47 lakh crore

“VIL promoters, Vodafone Plc and Aditya Birla Group, have already mentioned that if the entire AGR liability has to be paid, they will have to shut shop. We don’t see the situation for VIL being salvaged without government intervention,” it said.

“Apart from other stakeholders in VIL, the government, too, could be one of the most impacted parties if the company shuts down, as it is owed Rs 90,000 crore in deferred spectrum dues, besides the AGR liability. We also see an indirect impact on PSU banks if VIL fails to cough up the money,” it added.

The Supreme Court has dismissed the review petition filed by telcos on its AGR ruling, which means the order of October 24, 2019, continues to hold good.

Bharti Airtel and Vodafone Idea have disclosed their potential AGR liabilities at Rs 34,300 crore and Rs 44,200 crore, respectively, which have to be paid by January 23, it said.

A blow for telcos

According to a Motilal Oswal Securities report, India’s apex court dismissing the review petition filed by the telecom companies to grant relief on AGR liabilities is a blow to telecom companies.

“It won’t be surprising if the government comes to the rescue of the telecom sector. This is particularly because it has to recover Rs 90,000 crore as deferred spectrum debt from VIL, which has stated that it will shut operations if asked to pay the entire AGR liability. Also, VIL owes Rs 30,000 crore to banks (against this, the Aditya Birla Group and Vodafone Plc’s stake in VIL stands at a mere Rs 7,000 crore and Rs 8,000 crore, respectively),” the report said.

“Moreover, the implication for the end-customer in the event of VIL shutting down could be terrible,” it added.

The government may provide an extension on the AGR liability or a moratorium on the same lines as the spectrum payment liability, to resolve near-term cash flow issues.

Further, the Department of Telecommunications could consider waiving off penalties and interest on penalties before 2011 (as the first decision of the Supreme Court on AGR liability came in 2011).

The Telecom Regulatory Authority of India and DoT are deliberating on a reduction in the licence and spectrum usage charge (SUC), which could offer another INR30-40b each for Bharti and VIL.

'SC ruling no real surprise'

According to Annalisa Di Chiara, Senior Vice-President, Corporate Finance at Moody’s Investors Service, “While a fresh blow, the judgment is no real surprise and Bharti had already made provisions to help offset the impact on its balance sheet”.

“Nevertheless, the impact on its credit profile will likely be significant, with both debt and leverage set to rise. At the same time, the financial burden will likely further weaken Vodafone Idea’s ability to compete in the Indian market, potentially providing an opportunity for competitors Bharti and Jio to gain market share,” Chiara said.

Avenues to seek

Prior to the January 23 deadline, telecom companies still have some avenues to seek relief, while a government intervention cannot be ruled out, according to HSBC Global Research.

Apart from the curative petition, telcos could also reach out to the court for some relief related to payment timelines, as there was no discussion regarding a review of timelines when the review petition was heard.

Further, it is possible that the government could eventually get involved, considering its intent is to restore the financial health of the telecom sector.

 

Also read: All you wanted to know about AGR

Also read: Adjusted Gross Revenue: SC ruling deals Rs 70,000 cr blow to Airtel, Vodafone Idea

 

 

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