Will need government support for timely repayment: Voda Idea to lenders

MUMBAI | KOLKATA: Vodafone Idea’s top management has cautioned lenders that timely repayments may not be possible without urgent relief from the government if the telecom department decides to invoke bank guarantees to recover dues in the next three months, people familiar with the matter said.

Apart from looking to state support, the telco is planning to sell its data centres as well as its optic fibre network to raise funds, managing director Ravinder Takkar said on an analyst call on Friday.

“Banks with high exposure to Vodafone Idea met them (the management, including Takkar) this week, in which the latter expressed their inability to pay dues if the department of telecommunications (DoT) decides to invoke bank guarantees and not extend any relief,” said a senior official on the condition of anonymity. “They have told us that the ball is now in the government’s court.”

Vodafone Idea Ltd (VIL), which posted a record September quarter loss of Rs 50,921.9 crore, has debt of about Rs 1.02 lakh crore, most of it to the government in the form of spectrum and interest payments guaranteed by banks. It is now facing additional statutory dues worth more than Rs 44,000 crore in licence fees, spectrum usage charges, interest and penalties, which need to be paid in less than three months. This follows the October 24 Supreme Court ruling on the scope of adjusted gross revenue (AGR).


Hoping for a Positive Outcome

The company has said that its ability to continue as a “going concern” is dependent on getting reliefs — including a waiver on the interest, penalties on the AGR-related dues, lower taxes and levies, and a moratorium on spectrum payments — from the government.

It’s also hoping for a positive outcome from its proposed review of the Supreme Court ruling, failing which a curative petition can also be filed before a five-judge bench that may be different “from the bench that delivered” the October 24 judgement, Takkar said.

The company said Thursday it had set aside Rs 25,680 crore for the additional dues, widening its quarterly loss, the highest in corporate India’s history. Its revenue for the quarter ended September was Rs 10,440 crore, with operating income of Rs 3,347.1 crore. Investors didn’t seem too daunted — the stock rose 27% to Rs 3.75.

Takkar said some lenders had granted “waivers” while others were closely watching the developing situation. The telco’s chief financial officer Akshaya Moondra said some banks had pushed for advance payments, but the company had turned them down.

“Banks, because of covenant breaches, have a right to accelerate payment from time-to-time,” said Moondra. The company continues “to remain engaged with all our financial creditors. There is no acceleration of payment happening.”

He said vendors were supporting the telco through vendor financing.

State Bank of India (SBI) is the lead lender to Vodafone Idea with an exposure of Rs 11,200 crore, according to a report by brokerage firm Jefferies. However, another source said the exposure could be as much as Rs 12,000 crore. Other large staterun lenders on the list are Punjab National Bank and Bank of Baroda. Among private sector banks, IndusInd Bank has an exposure of Rs 3,000 crore while that of ICICI Bank and HDFC Bank is Rs 1,700 crore and Rs 500 crore, respectively, said the Jefferies report.

ET has learnt that the troubled telecom major may also ask banks to write to the ministry if its demands aren’t met.

“Let the management first have a dialogue with the DoT. If they fail to accept its demands, the lenders may explore formally writing to the ministry to take up its case as our exposures are huge,” said another bank official.

Vodafone Idea did not respond to ET’s query on its meeting with banks.

Goldman Sachs said in a report that the provision amounts to around 43% of Vodafone Idea’s net debt. If it had to pay the provisioned amount in full, its net debt-to-ebitda (earnings before interest, taxes, depreciation, and amortisation) could rise to 28x, compared with 20x as of September. It added that ebitda continues to be under pressure, despite merger synergies.

This has added to Vodafone Idea’s need for relief from the government.

Relief key, operations improving

“Providing relief from this judgment is very much in the hands of the government as they are winners of this case,” said Takkar. “Given the stress and criticality of the sector, we don’t see any conflict in the government being able to act in the overall interest of the economy and consumers.”

He also expects the panel of secretaries, which is discussing ways in which to provide relief to the sector, to make “positive recommendations” to help restore its health, including a longer tenure for spectrum payments and freeing up Rs 7,000 crore of blocked goods and services tax (GST) input credits.

He added that the government was aware of the stress in the industry with debt of over Rs 7 lakh crore and wants three non-state contenders plus one public sector telco in the market.

“Our discussions with the government suggest the regulator may start a review of floor pricing…there are significant opportunities to reduce the predatory pricing position that we have been in for several years, which has impacted not just us (VIL), but the overall industry,” the Vodafone Idea MD said. The government has been nudging the telecom regulator toward setting a floor price for tariffs but the Telecom Regulatory Authority of India (Trai) has been resisting this, said people with knowledge of the matter.

Trai chairman RS Sharma said Friday that the regulator hasn’t received any reference from DoT on the issue.

Takkar said the company has seen a steady reduction in customers leaving its network for rivals and expects customer attrition to end by March 2020, once the benefits of integration start kicking in.

“It is premature to say whether revenue has bottomed out but the company is seeing some green shoots, courtesy integration benefits in VIL’s strong markets,” said Takkar, adding that the company doesn’t plan to exit its non-core markets.

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