NEW DELHI: The Supreme Court’s verdict directing telcos to cough up Rs 92,640 crore in contested dues to the government may well push cash-strapped Vodafone Idea Ltd. (VIL) towards bankruptcy, feel analysts. Liable to shell out Rs 28,309 crore in license fees and penalties, on top of a possible Rs 11,000 crore in additional spectrum usage charges (SUC), VIL has little financial space to meet the demand within three months.
With the SC verdict favouring the DoT, the sector stands to shell out a whopping Rs 92,640 crore in license fees, penalties and interest. On top of this, another Rs 41,000 crore in SUC may be demanded from the sector based on the SC-approved definition of AGR.While Bharti Airtel is likely to be able to foot the bill, analysts fear VIL may not. "An upfront liability… may move it to the National Company Law Tribunal (NCLT) if the government does not salvage the situation," IIFL Institutional Equities said, warning that this would put VIL’s Rs 90,000 crore spectrum debt and Rs 30,000 crore exposure to banks at risk.
According to Motilal Oswal Institutional Equities, VIL had a cash balance of Rs 21,000 crore as of June 2019, and might be able to raise Rs 5,000 crore from stake sales in Indus Towers and another Rs 4,500 crore from four quarters of earnings. “Against this cash, it has an estimated cash outflow of Rs 28,000 crore,” it said, noting that even without the additional DoT charge, VIL would need additional capital to fund operations beyond the next 3-4 quarters.
To be able to meet the DoT demand, VIL will need urgent capital, either through infusions from promoters or from the market. However, with stock prices having fallen 85 per cent since September 1, 2018, to Rs 4.11 on Friday, it will be tough to mobilise funds from the market.
“The company may need to resort to another large equity raise round to fund these payouts. This may not be easy, however, given that the amounts we are talking about are a multiple of the company’s current market capitalization,” Kotak Institutional Securities noted. “We will engage with the DoT in order for it to consider granting relief, including a waiver of interest and penalties,” the company further said.
Telcos with highest liabilities
This includes Vodafone Idea, Bharti Airtel (Rs 21,682 crore), bankrupt Reliance Communications (J16,456 crore), BSNL (Rs 2,098.72 crore) and MTNL (Rs 2,537.48 crore). The verdict comes after a decade and a half-long legal battle between the Department of Telecom (DoT) and telecom firms over the definition of adjusted gross revenue (AGR), based on which license fees and spectrum usage charges (SUC) are calculated.