Vodafone Idea Partially Recovers On Likely AGR Relief From Government

Vodafone Idea Ltd.’s shares partially pared losses after a record 39.2 percent intraday plunge, after a possibility of relief regarding the ‘additional gross revenue’ emerged on Friday.

India is open to hearing wireless carriers’ suggestions to help ease payment of more than Rs 70,000 crore in overdue fees, a government official with knowledge of the matter told Bloomberg.

Stripping out interest from the dues or paying the amount in tranches are some ideas that the government can discuss, the official said, asking not to be identified citing rules. An independent panel can examine such requests provided the companies commit to pay some amount immediately, the official said.

Vodafone Idea’s shares had plunged as much as 39.2 percent earlier today in its largest intraday fall ever, after the Supreme Court rejected review petitions on the adjusted gross revenue verdict.

The company owes an estimated Rs 44,150 crore in AGR dues to the government, of which Rs 8,400 crore is to be paid by Vodafone Plc. It has a total debt of Rs 1,17,300 crore on its balance sheet.

Both Vodafone Idea and Bharti Airtel Ltd. posted losses running into thousands of crores in the second quarter as they provisioned for AGR dues.

Analysts raised concerns regarding the health of India’s telecom industry. “The market is now hypothetically pricing in a two-player telecom market. That means the 300-million user base of Vodafone Idea is likely to get allocated between Jio and Bharti,” said Rajiv Sharma, co-head of research, telecom at SBICAP Securities told Bloomberg News.

This comes a day after the Supreme Court rejected review petitions filed by Vodafone Idea and Bharti Airtel Ltd.—two of India’s three largest telecom players. The bench headed by Justice Arun Mishra did not find any “justifiable reason” to entertain the review petitions filed.

“What we have in front of us is reality,” former Airtel CEO Sanjay Kapoor told BloombergQuint before Bloomberg reported on a likely telecom relief. “We have come a full circle where we started with a duopoly and finally experimented with oligopoly, then perfect competition, then hyper competition, then back to oligopoly and now to duopoly it seems.”

Nitin Soni, director of corporate ratings at Fitch Ratings, believes Vodafone Idea will rapidly start losing market share and may not be able to pay its dues “unless some miracle happens in the form of equity injection by the sponsors.” He added that it was unlikely.

Vodafone Idea is currently exploring further options, including the filing of a curative petition on the AGR Matter, the company said after yesterday’s ruling.

Aditya Birla Group Chairman Kumar Mangalam Birla had earlier warned of a Vodafone Idea shutdown if the government doesn’t provide relief on the liability.

The apex court, in its October ruling, had said that the operators would have to include non-core revenue to calculate levies. That left them with a bill of more than Rs 50,000 crore as adjusted gross revenue dues comprising spectrum usage charges and licence fees, among others.

Bharti Airtel, on the other hand, is currently in the process of raising $3 billion in funds from the equity and debt market. Airtel owes Rs 34,260 crore in AGR dues.

Here’s what analysts had to say after the Supreme Court order:

Morgan Stanley

• Airtel’s recent fundraising gives it the liquidity to meet AGR liability, it will be critical to see the way forward for Vodafone Idea.
• There is a possibility that the telecom industry could further consolidate into two players.

Edelweiss

• Odds of relief after filing a curative petition is low.
• The onus of ensuring the market structure does not move to a duopoly lies with the government.
• Bharti Infratel too cannot escape the repercussions of the potential change in market structure.
• Maintain a positive stance on Airtel and Jio given their ability to fund liabilities and gain market share.

UBS

• The decision is clearly negative for Vodafone Idea as the company’s faces meaningfully large liability.
• Will closely monitor the outcome of the curative petition if any.

IIFL

• Chances of a relief from a curative petition before the Jan. 23 deadline look remote.
• Government is likely to spread out payment over a long period to avoid pushing Vodafone Idea into NCLT.
• Spread out payments plus tariff increases are a feasible combination.