SC may have sprung hope on AGR, but still little respite for Vodafone Idea

NEW DELHI: The Supreme Court, which will hear the telecom adjusted gross revenue (AGR) case on June 18, has asked telecom operators to file replies with roadmaps and time lines for the payment of their AGR dues to the government and the security they seek to provide against it.

Analysts saw it as a positive development, as the apex court had earlier been very stern in its orders, directing the telecom companies to deposit the entire AGR-related dues immediately.

That said, analysts apprehend the possibility of the apex court asking for personal guarantees at its next hearing, which the telcos are unlikely to accept. As such, uncertainty looms large, especially for Vodafone Idea, which has a relatively weaker balance sheet than Bharti Airtel.

For Voda Idea to avoid a shutdown, a 15-20 year payment period and equity infusion is a must, they noted.

“Considering the fact that the apex court has made a comment on the possibility of personal guarantees by directors, the nature of security acceptable against dues could become a contentious issue,” said Edelweiss Securities.

An ET report quoting senior executives at Vodafone Idea and Bharti Airtel said the telcos were considering offering their spectrum, tangible assets and tax refunds as security to the Supreme Court.

Edelweiss does not expect the promoters of the companies to hand out personal guarantees. Instead, they would like to accept terms such as licence cancellation, no dividend or buyback till repayment, among others.

SBICap Securities said since the telcos may find it tough to furnish personal guarantees, the Supreme Court is unlikely to allow 20 years and is most likely to consider a shorter timeframe which may not be good news for Vodafone Idea.

“That said, we highlight that if Vodafone Idea is asked to pay the dues upfront, it will have no other options but to shut down. Separately, we highlight that the outstanding dues for Vodafone Idea on account of spectrum are going to be around $ 11.7 billion, much higher than the AGR dues of $ 6.8 billion,” IANS quoted the brokerage as saying.

Industry estimates show Vodafone has net tangible assets worth Rs 40,000 crore. Its spectrum holding is valued at almost Rs 1.2 lakh crore, apart from the Rs 8,000 crore in input tax credits and Rs 12,000 crore in income-tax refunds, which it has been pursuing with the government.

On the other hand, the company has net debt of over Rs 1.1 lakh crore while spectrum liabilities are estimated at $11.7 billion.

"Among the two telecom operators, Bharti clearly is in a very strong position having raised $7-8 billion of equity through a rights issue, equity injection through the IPO and stake sale in Airtel Africa,” said Nitin Soni, senior director for corporates at Fitch Ratings.

“The tariff hikes announced in December 2019 have provided a big support to cash flow generation for Bharti. Its fourth quarter earnings came out pretty good, as it added a substantial number of 4G subscribers and saw Arpu rise to Rs 154, the highest in 11 quarters. Not to forget, the Airtel Africa business is also performing well," Soni said.

Even if one believes that a 20-year grant is given to pay back the dues, it would still result in a cash outgo of Rs 2,700 crore and Rs 5,200 crore annually for Bharti and Vodafone Idea. The latter would require a 50 per cent Arpu hike to service its obligations, said Motilal Oswal Securities.

“A lower payment tenure may put pressure on Vodafone Idea’s cash flows,” it said.

Voda Idea owes Rs 58,254 crore in adjusted gross revenue (AGR) dues to the government. It has paid only Rs 6,854 crore so far. Airtel owes Rs 25,976 crore after paying Rs 18,004 crore.