The Supreme Court on Monday chose to allow telecom companies 10 years to pay their remaining AGR dues to the government, with 10 per cent of the total to be paid before March 31, 2021. The keenly awaited verdict also removes the fog of uncertainty surrounding the telecom sector, and companies such as Vodafone Idea and Bharti Airtel can now plan finances around a staggered schedule instead of facing a very difficult one-shot payment requirement.
However, this relief is not equally fortuitous for all parties in question, and the way share prices behaved after the verdict show what investors think Bharti Airtel’s and Vodafone Idea’s prospects are.
Vodafone Idea may no longer be staring at an immediate, and ignominious, insolvency, but there is no guarantee the ten year timeframe will save it from such a fate down the road. According to analysts speaking ahead of the verdict, the company would find any timeframe shorter than 15 years extremely difficult to service. For Bharti Airtel, with far healthier finances and capital, any staggered payment system would come as a significant boost.
Not surprisingly, as of 12 pm on Monday, Airtel stock prices had shot up nearly 6 per cent. In stark contrast, Vodafone Idea scrip plunged over 17 per cent in less than half an hour after the judgement was read.
Vodafone Idea’s problem is cash—in that, it doesn’t have much. After accounting for the already paid Rs 7,854 crore, the company still needs to pay Rs 50,400 crore to the government. Airtel has to pay around half of that at Rs 26,000-odd crore. But, with both of VIL's promoters having ruled out any chance of further capital infusions, it has been left with a cash balance of just Rs 3,450 crore as of the end of June this year.
Writing after the SC had shot down a 20-year payment schedule as untenable last month, Motilal Oswal analysts had said in a note that a shorter time-frame would put pressure on Vodafone Idea’s cash flows.
“A 20/15/10-year grant would result in Bharti seeing an annual cash outgo of Rs 2,600 crore/Rs 3,000 crore/Rs 3,900. VIL’s cash outgo will be Rs 5,100 crore/Rs 5,900 crore/Rs 7,500 crore at an 8% interest rate respectively,” the analysts had written, adding that Vodafone Idea will have to hike prices significantly to meet its liabilities.
However, the company is already bleeding subscribers and hiking prices may not be a winning move. According to analysts, it will need to increase its average revenue per user (ARPU) by 73 per cent to meet its obligations. But such a tariff hike, if followed by its rivals Airtel and Reliance Jio, would see their own earnings rise a whopping 42 per cent and 77 per cent respectively.
NCLT to decide on spectrum sale
Meanwhile, on the other crucial question of whether bankrupt firms such as Anil Ambani's Reliance Communications may sell their spectrum licenses as part of their resolution plans, the SC said that this issue would be decided by the bankruptcy court—National Company Law Tribunal (NCLT).
In its final order, the bench asked the Managing Director (MDs) or Chief Executive Officer (CEOs) of the liable companies to furnish an undertaking or personal guarantee within four weeks for the payment of dues. It also warned them that failure to pay the installments would incur penalties, interest and contempt of court charges.