India’s private telecom operators Vodafone Idea Limited (VIL) and Bharti Airtel may offer spectrum, tangible assets and tax refunds as security to the country’s Supreme Court, which allowed them on Thursday to submit an affidavit explaining the roadmap to clear the remaining AGR-related dues.
After hearing the rescue plan proposed by the Department of Telecommunications, the Supreme Court raised questions on payment period, as it found 20 years unreasonable. It, however, agreed on staggered payment and asked telecom operators to furnish security and bank guarantees against their AGR-related dues within the next five days, including personal undertaking by company directors.
Media reports suggest that these telecom operators have sufficient assets in the books that they could provide for security against staggered payment over 20 years.
Vodafone Idea currently has net tangible assets worth Rs 40,000 crore ($5.26 billion), and has spectrum holdings worth almost Rs 1.2 lakh crore ($15.79 billion). The telco has been asking the Indian government to release Rs 8,000 crore ($1.5 billion) in input tax credits and Rs 12,000 crore ($1.58 billion) in income tax refunds.
Brokerage firm SBICAP Securities pegs Vodafone Idea’s net debt at over Rs 1.1 lakh crore ($14.47 billion) and spectrum liabilities at $11.7 billion.
Notably, Vodafone Idea already said that it may not be able to clear AGR-related dues at one go and furnish bank guarantees due to its current financial situation. VIL, which owes Rs 58,254 crore or $7.6 billion towards AGR-related dues, told the apex court that it doesn’t have enough money to pay its employees and meet expenses.
Axis Capital said that it might be a stretch for Vodafone Idea to give security for ($6.76 billion balance dues, as it had only $1.6 billion in cash at the end of Q3FY20, having paid $901.84 million in AGR dues from its cash balance.
While raising bank guarantees difficult for VIL, the court has given alternate options like a personal guarantee or any other security. “Given other assets of the promoter Aditya Birla Group (Grasim Industries, Hindalco Industries, etc.) and improving fundamentals of the sector, VIL can furnish the guarantee sought by the court,” Axis Capital said.
Analysts said that Sunil Mittal-led Bharti Airtel’s AGR risk is lower as it has already paid Rs180 billion or $2.4 billion (including $657.89 million ad hoc) after the $3 billion fundraisings. It is awaiting final DoT demands on AGR payments.
“We see Bharti Airtel better placed to pay AGR dues of as it has raised fund (QIP) and has assets available for monetization, and has already paid Rs 180 billion ($2.37 billion). It has Rs 260 billion ($3.42 billion) outstanding in AGR dues and Rs 136 billion ($1.79 billion) in cash at end of Q4FY20. Thus, it may be required to give security of Rs 124 billion ($1.63 billion) only, which looks manageable given its assets and improving fundamentals of the sector,” Axis Capital said in a note.
Citi Research, in its latest note, said that Vodafone Idea will require a combination of additional tariff hikes, equity infusion, tower monetisation, and rationalisation of levies to be able to repay its AGR dues.
Media reports said that Airtel, Vodafone Idea and Tata Group might seek clarity from the Department of Telecommunications on the amount that needs to be paid. Both Airtel and Vodafone Idea have come up with different figures as per their self-assessment, and have already paid part.
The Indian government had previously approved a plan to help telcos sail through these tough times. In its March 13 decision, the government proposed a formula that includes staggered payment of AGR dues over 20 years at a discounted rate of 8% and freezing interest and penalty components as of October 24.
Media reports said that the Indian government might also come up with a new comprehensive package, which may include a sovereign guarantee of 15% of AGR dues if an operator were to approach a public sector bank for a loan.