NEW DELHI: One man’s gain is another man’s loss and Indian telecom’s current AGR dues crisis only confirms this economic truism. Thursday’s decision by the Supreme Court to dismiss review petitions against its October 2019 order directing them to pay around Rs 1.47 lakh crore in statutory dues to the government leaves clear winners and losers in its wake.
Analysts say that in the absence of immediate relief, Vodafone Idea may well have to hang up its boots and file for bankruptcy, leaving its financial creditors high and dry. Rivals Bharti Airtel and Reliance Jio, on the other hand, will have Vodafone Idea’s millions of subscribers to woo.
While both Airtel and Vodafone Idea may file curative petitions, Motilal Oswal (MOSFL) analysts say that "historically such petitions have been rarely accepted by the SC". Stock movements on Friday only buttress this view.
While Airtel scrips ended 5.47 per cent higher, Vodafone Idea stock finished the day 25.21 per cent lower. Banks with high exposure to telecom stocks also saw stock prices crash, with analysts noting that major banks have a debt exposure worth nearly Rs 1.8 lakh crore to the telecom sector.
However, it is Vodafone Idea’s debt that is a matter of immediate concern to financial creditors. While Airtel and Vodafone Idea have to shell out Rs 35,586 crore and Rs 53,038 crore respectively by January 23, according to the Department of Telecom, analysts are confident that Airtel will be able to foot the bill.
The company had raised over Rs 14,000 crore just last week to service its AGR liabilities. “We believe exposure to Vodafone Idea remains most concerning due to insufficient cash balance and cash flows, and a lack of borrowing capacity to fund these dues. For banks with exposure to Vodafone Idea, fund-based exposures are likely to be at the highest risk,” said JM Financial’s analysts in a note.
Major banks to whom Vodafone Idea owes the most principal outstanding include Yes Bank (Rs 5,000 crore), State Bank of India (Rs 4,750 crore), Punjab National Bank (Rs 2,000 crore), Canara Bank (Rs 1,000 crore) and IndusInd Bank (Rs 995 crore). Vodafone Idea’s total debt to banks stand at over Rs 30,000 crore currently.
"The company has no source of cash to pay the liabilities and was entirely dependent on payment relief. It has cash merely to continue operations for the next 2-3 quarters. Taking the AGR liability aside, our workings indicate Vodafone Idea (post recent price hike) has a deficit of Rs 40-50b to cover cash interest and capex from operating cash flow," said the brokerage.
However, the government may well step in to provide relief, since top ministers and officials have indicated that the Centre is not in favour of the private telecom sector turning into a duopoly. "It won’t be surprising if the government comes to the rescue of the telecom sector," MOSFL noted.
Centre has little gain from AGR dues
According to JM Financial Ltd, the Central government stands to gain little from the inflow of AGR dues, since even in the best case scenario, it is likely to gain just 0.28 per cent of GDP in FY20.