Government relief for telecom companies, tariff hikes may not offset impact of SC ruling: Fitch

The court ruled that non-telecom revenues should be included in AGR for payment of licence fee and spectrum usage charge.

Published: 22nd November 2019 02:57 PM  |   Last Updated: 22nd November 2019 02:57 PM   |  A+A-

Supreme Court

Supreme Court (Photo | PTI)

By PTI

NEW DELHI: Fitch Ratings on Friday said the two-year moratorium on payment of spectrum dues for telecom companies and hike in tariffs are unlikely to be sufficient to offset the impact of the Supreme Court ruling on past statutory dues on Bharti Airtel and Vodafone-Idea.

The Supreme Court on October 24 ruled against the telcos in a 14-year-old dispute on the definition of adjusted gross revenue (AGR) which forms the basis for payment of statutory dues.

The court ruled that non-telecom revenues should be included in AGR for payment of licence fee and spectrum usage charge.

ALSO READ: What is AGR and why is it bogging down Vodafone and Airtel?

"The decision by all three private Indian telecommunication companies to raise tariffs from December 2019 and a two-year moratorium on payment of spectrum dues (announced by the government this week) are positive for the industry," Fitch said.

"However, these are unlikely to be sufficient to offset the impact of a recent Supreme Court judgement for incumbents Bharti Airtel and Vodafone Idea Ltd."

Reliance Jio (Jio), a subsidiary of Reliance Industries, is not affected by the ruling and is likely to continue to gain revenue market share, which will support RIL's deleveraging plans, Fitch said.

ALSO READ: Now, Jio joins Airtel and Vodafone Idea in hiking mobile tariffs

Fitch said it has a negative outlook on the sector for 2020, primarily due to heightened financial risk associated with the large unpaid AGR-related dues.

On November 20, the government announced plans to suspend payment of deferred spectrum dues for two years, which will ease cash flow pressure on all three telcos.

Vodafone Idea and Bharti will benefit the most as their negative free cash flow will reduce by USD 1.7 billion and USD 850 million a year, respectively, for the financial year ending March 2021 (FY21) and FY22.

The incumbents are likely to file a review petition in the Supreme Court and have also approached the government to seek other forms of relief including waiver or grant of deferred payment terms for the AGR dues and a reduction of licence fees and spectrum usage charges.

ALSO READ: From bad to worse? Analysts fear Vodafone-Idea's dues to government could rise steeply

"Despite the tariff hike, Fitch still believes it will take negative rating action on Bharti if it pays the AGR dues within three months and funds the payments entirely by debt," it said.

"We will resolve the Rating Watch Negative on Bharti's ratings once we have greater clarity on the timing and financial impact of the regulatory dues and any remedial measures."



Comments

Disclaimer : We respect your thoughts and views! But we need to be judicious while moderating your comments. All the comments will be moderated by the newindianexpress.com editorial. Abstain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks. Try to avoid outside hyperlinks inside the comment. Help us delete comments that do not follow these guidelines.

The views expressed in comments published on newindianexpress.com are those of the comment writers alone. They do not represent the views or opinions of newindianexpress.com or its staff, nor do they represent the views or opinions of The New Indian Express Group, or any entity of, or affiliated with, The New Indian Express Group. newindianexpress.com reserves the right to take any or all comments down at any time.

flipboard facebook twitter whatsapp