Vodafone Idea AGR dues: Banks to take a beating if telco collapses

The Supreme Court recently quashed the review petition filed by incumbent operators Vodafone Idea and Bharti Airtel on the AGR (adjusted gross revenues) dues. The apex court's October judgement has affected 15 telcos but only five of them are operational right now. Out of these five, nearly 60 per cent (of Rs 1.47 lakh crore) is due on incumbents. As per reports, these telcos would likely seek an extension of the payment deadline (January 23) or file a curative petition with the court.

Under such petition, the petitioner will have to prove that the court's decision would have a humanitarian impact and severe repercussions on GDP. A curative petition is reviewed by the three senior-most judges of the Supreme Court, alongside the judges who passed the original judgement. Given that the past success of such petitions is low, telcos like Vodafone Idea who neither have cash to pay up dues (Rs 53,038.6 crore) nor the backing of promoters - Aditya Birla Group and Vodafone Plc - to infuse fresh capital, the chances of it going under seem highly likely. In an interview in December 2019, Kumar Mangalam Birla, chairman of Vodafone Idea, had said that in the absence of any relief on the AGR case, "it does not make sense to put good money after bad. That would be end of story for us. We will shut shop."

Financial services firm Jefferies said, in a report, that Vodafone Idea is on a sticky wicket. "The best case for lenders is VIL survives long enough and repays the loans back. It all depends on whether India is okay with a two-player market," the 16 January report said. The result of Vodafone Idea facing a shutdown may result in billions of debt default, large-scale job losses and subscriber churn. The biggest losers are going to be government and banks.

Also read: Blow to Airtel, Vodafone Idea as SC dismisses review plea in AGR case

As per some estimates, the government would be impacted the most as the telco owes about Rs 90,000 crore in deferred spectrum dues and AGR liability. Goldman Sachs says that Vodafone Idea's debt excluding deferred payment liability is around Rs 28,000 crore, with cash and cash equivalents of Rs 15,400 crore as of September 2019. This essentially means that its net exposure is some Rs 13,000 crore which is not substantial (or less than 2 per cent) in the context of overall non-performing loans in the entire banking system. But bad loans of such size would impact investor confidence and lead to higher risk aversion among banks towards telcos.

The Goldman Sachs report (dated January 17) said that banks like State Bank of India (Rs 11,200 crore), IndusInd Bank (Rs 3,995 crore), IDFC First Bank (Rs 2,500 crore), ICICI Bank (Rs 1,725 crore) and Punjab National Bank (Rs 1,027.7 crore) have a sizeable exposure to Vodafone Idea. In terms of exposure, debt given to Vodafone Idea account for 11 per cent of the IDFC First Bank's networth, and 9 per cent of the IndusInd Bank's networth.

In general, the exposure of banks to the entire telecom sector ranges between 10 per cent and 30 per cent of their total equity with Yes Bank having the highest exposure (Rs 7,937 crore) of 29 per cent (of its equity) amongst private banks. Within the public sector banks, State Bank of India has extended debt of Rs 36,542 crore (or 16 per cent of its total equity). Now if a telco defaults on these payments, it will have impact on not just other telcos but also on the telecom infrastructure firms and the banking system.

Also read: Vodafone Idea share price crashes 39% on Supreme Court's AGR verdict, falling subscriber base

Also read: Infographic: Can telcos survive Rs 93,000 crore AGR blow?