Voda Idea debt overhaul of little use, banks say

Cash-strapped Vodafone Idea Ltd lenders believe the government must step in to save the telecommunications company and that a debt overhaul would be of little use.

Indeed, most of the banks’ exposure to Vodafone Idea does not come in the form of term loans, which can be restructured, but guarantees not based on funds, according to the bankers. The phone company’s dues such as spectrum and regulatory fees also far exceed its outstanding loans, they said on condition of anonymity.

Banks are no longer willing to lend more to the mobile operator, as financial stress from low telecom tariffs would make such an infusion meaningless, one of the two bankers said. They said it is in the government’s interest to ensure that an important player in a strategically important sector does not collapse due to lack of state support.

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Vodafone has repaid its loans, said the banker quoted above, although its operational viability is a concern if low tariffs and AGR burden continue

“We are in constant conversation with the government, and the lender consortium believes the company should be granted a stay,” said the banker of a public lender.

The company said that excluding rental debts, it owed the government and banks a total of ₹1.8 trillion as of March 31, 2021, including deferred payment obligations for the spectrum of ₹96,270 crores and passive adjusted gross income (AGR) of ₹60,960 crores. In addition, a report by Care Ratings on January 7 indicated that it also had term loans of ₹13,826 crore and guarantees and letters of credit of ₹23,737 crores.

Vodafone has repaid its loans, said the banker quoted above, although its operational viability is a concern if the low tariffs and AGR burden continue. He said the company is also in talks with the banks about the situation.

“There are only three telecom players in India, and the government needs to understand that if because of the collapse of an actor it turns into a duopoly, it won’t be long before it turns into a monopoly. We also hope that the Supreme Court will take up the request for reassessment of AGR contributions, ”added the banker.

An email sent to Vodafone Idea went unanswered until the time of publication. A spokesperson for the State Bank of India (SBI) declined to comment on “individual accounts and their handling.” The main lenders of Vodafone Idea are State Bank of India, IndusInd Bank and Yes Bank.

In September last year, Aditya Birla Group and Britain’s Vodafone Group Plc, the majority shareholders of the telecommunications company, announced their intention to increase to ₹25,000 crores for Vodafone Idea. However, the injection of funds into the company did not take place.

A second banker from a private sector lender said he hoped the government would take up the matter urgently.

“If they allow the deferral of Vodafone Idea’s spectrum royalties by more than ₹8,000 crore for now, even then the business will be able to survive, ”he said.

According to a note from CLSA to customers, with ₹1.8 trillion in debt, 88% of which is for spectrum and AGR dues, the telecommunications company is heading into a crisis when annual payments become due.

It’s not just lenders who are worried about rates. Press Agency Press Trust of India Bharti Airtel Ltd chairman Sunil Mittal reported Thursday that tariffs must increase due to the enormous stress in the telecommunications industry, and Airtel will not hesitate to raise prices but it will not do so unilaterally.

“To say that the telecommunications industry is in trouble is actually an understatement. He is under tremendous stress. I hope the government, authorities and telecom department will all focus on this issue and ensure that India’s digital dream remains intact through the provision of at least three operators, ”said Mittal.

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