India’s Top Court Approves 10-Year Rescue Plan for Telcos

(Bloomberg) -- India’s top court approved a plan giving phone companies 10 years to pay back a combined 1.4 trillion rupees ($19 billion) in outstanding fees, a significant concession from the original three month deadline but only half the time the carriers had sought.

A three-judge panel on Tuesday said 10% of the dues must be paid in the first tranche and the written judgment, which is awaited, will provide more details on the repayment structure. Prime Minister Narendra Modi’s government had proposed a 20-year repayment window, which the telecom companies had supported.

Shares of Bharti Airtel Ltd. surged the most since May as it has already raised money to pay the dues. However, the fine print of the court ruling could determine the fate of cash-strapped Vodafone Idea Ltd., which is struggling with mounting losses and more than $14 billion of debt. Billionaire Kumar Mangalam Birla, the chairman of the local joint venture with U.K.’s Vodafone Group Plc, warned in December that the company was headed toward insolvency in the absence of aid.

“This is positive for Bharti Airtel and Reliance Jio and negative for Vodafone Idea,” said Gurmeet Chadha, strategist at Complete Circle Consultants in Delhi. “Telecom is a gruesome business and when 5G comes you will have to pay more for spectrum. Eventually, unless Vodafone Idea raises significant capital or gets a strategic partner, we are headed for a duopoly.”

Representatives for Vodafone Idea and Bharti Airtel declined to immediately comment.

Price War

The firms are the two non-state survivors of a brutal price war sparked by the debut of billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd. in 2016. As the new entrant lured 380 million users in about three years with free calls and cheap data, rivals struggled. Many incumbents exited the market, merged or filed for bankruptcy.

The government said in March that of the total demand worth 1.69 trillion rupees, 1.4 trillion rupees remains to be paid by all telecom companies. Bharti Airtel faced $5.9 billion, of which it has cleared $2.4 billion, while Vodafone Idea has paid a little over $1 billion against its $7.8 billion bill.

Shares of Bharti Airtel gained 6.5% to 546.25 rupees in Mumbai on Tuesday, while Vodafone Idea fell 13% to 8.85 rupees.

Investors are awaiting Vodafone Idea’s decision following the court ruling on whether the company finds it viable to continue operating in India, according to Complete Circle’s Chadha. The company on Tuesday said in a separate statement it is selling its stake in a tower company for 40.4 billion rupees cash, part of which will go toward other dues.

“This 10-year rescue plan has averted an immediate bankruptcy for Vodafone Idea in India,” said Arun Kejriwal, director at KRIS, an investment advisory firm in Mumbai. “But this will also force the promoters to present a long term plan as India is the fastest growing market in the world.”

©2020 Bloomberg L.P.