Tag: Vodafone Idea

DoT may return Rs 14,000-crore bank guarantees to Vodafone Idea, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: The government plans to return bank guarantees worth Rs 14,000 crore to Vodafone Idea (Vi) and Rs 8,000 crore to Bharti Airtel if they opt for a four-year moratorium on payment of spectrum dues, a person aware of the development said.

The development is expected to drastically reduce Vodafone Idea’s non-fund exposure to banks that have been hesitant to furnish fresh bank guarantees (BGs) to the loss-making telco due to its precarious financial position.

“BGs in deferred annual instalment against spectrum bought in earlier auction will be returned to telcos opting for moratorium,” the source told ET. “Vi stands to get about Rs 14,000 crore and Airtel about Rs 8,000 crore.”

Bharti Airtel chairman Sunil Bharti Mittal on Thursday said the telco will opt for the moratorium while cash-strapped Vodafone Idea too is widely expected to opt for it.

Experts said return of bank guarantees will allow banks more leeway to lend to Vodafone Idea in the future.

“A large part of our exposure (to Vi) is towards bank guarantees to the DoT (Department of Telecommunications),” a lender said on the condition of anonymity. “If those are returned, it gets cancelled and our exposure towards Vodafone Idea will drop significantly.”

Re-rating of the company could also lead to refinancing of existing loans at lower rates.

“We will have to see how this evolves, but in all likelihood, when the operating metrics of the telco improves, we will be able to offer them lower rates and rework loan covenants depending on how the cash flow situation improves,” the lender said.

Banks have a total exposure of a little over Rs 35,000 crore to the company, of which funded exposure is close to Rs 13,800 crore while the remaining is non-funded.

Vodafone Idea had a gross debt of Rs 1.9 lakh crore at June end – mostly in obligations to the government towards deferred spectrum charges and adjusted gross revenues (AGR)-related dues – while its cash and cash equivalents are only Rs 920 crore.

The government on Wednesday rolled out a four-year moratorium on the statutory dues of telcos and opened up the automatic route for 100% foreign direct investment in the sector, which is expected to help attract global investors.

Bank guarantees have long been a bone of contention between telcos and DoT.

Airtel’s Mittal has been propagating scrapping the practice of taking BGs. “Bank guarantee is something which the DoT must reconsider because those are from historical times,” he had told ET in a recent interview. “Now that you have exposure of tens of thousands of crores of spectrum payments to these operators without any such instruments, why bother about these small bank guarantees?”

Mittal also pointed out that the Reserve Bank of India (RBI) norms mandate provisioning of that much capital allocation, thus reducing the capital pool, and the cost of bank guarantee has quadrupled.

The government had on Wednesday cut bank guarantee requirements against statutory dues such as licensee fees to 20% from 100%, and said the financial instrument won’t be required anymore to secure instalment payments in upcoming auctions.

This was over and above a four-year moratorium on AGR and spectrum payments, approved redefining AGR to exclude ‘non-telecom’ items and cut the spectrum usage charge (SUC) to zero — both prospectively — as part of wide-ranging reforms to improve the health of the debt-laden sector and make sure the market has at least three private players.

Vi stock has jumped about 30% in two days to close at Rs 11.25 on the BSE on Thursday.

Govt can also turn part of dues into equity after four-year period.



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Vodafone Idea, lenders jump after govt nod to telecom package, BFSI News, ET BFSI

Banking & Finance

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BENGALURU: Shares of Vodafone Idea Ltd surged nearly 20% and banks with exposure to the telecom firm jumped on Thursday, a day after the Unino Cabinet approved a relief package for the troubled sector.

A four-year moratorium on airwaves payments due to the government and raising the tenure of airwaves held by firms were a part of the package, along with a change in the contentious definition of adjusted gross revenue (AGR) to exclude non-telecom income.

Analysts said that the measures could restore the idea of a three-player telecom market for the time being, but it does not provide a long-term solution.

“For long-term sustainability, Vodafone Idea will require not only capital infusion, but a sizeable tariff hike for 4G pre-paid customers. In the absence of this, the industry can slip towards a duopoly,” said Pranav Kshatriya, vice president of institutional equities at Edelweiss Securities.

Troubles for the telecom sector, which had already been disrupted by the entry of billionaire Mukesh Ambani’s Reliance Jio and forced some rivals out of the market, had been compounded with the huge dues to be paid to the government.

Vodafone Idea, a combination of the India unit of Britain’s Vodafone Group and domestic telecoms firm Idea Cellular, alone still owes the government about Rs 50,000 crore ($6.81 billion).

Shares of the company climbed 20% to their highest since June 29, while rival Bharti Airtel rose up to 1.4% before shedding early gains.

IDFC First Bank, Yes Bank and IndusInd Bank, which, as per Nomura, have exposures to Vodafone Idea at 3%, 2.4% and 1.7% of their loan books, respectively, climbed as much as between 5% and 13%. Analysts say the default risk has been largely taken out in the near medium term.



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MFs sold YES Bank, Vodafone Idea; tweaked stakes in these Jhunjhunwala stocks, BFSI News, ET BFSI

Personal Finance

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NEW DELHI: Domestic fund managers pared stakes in retail favourites Vodafone Idea and YES Bank, and tweaked their holdings in certain Rakesh Jhunjhunwala-backed companies, the monthly data for August suggest.

Data showed MFs held YES Bank shares worth Rs 137 crore as on August 31 compared with Rs 155 crore at the end of July. During the month, they trimmed their holding in the private lender to 15.15 crore shares from 17.67 crore shares. Retail and HNI investors owned 32.32 per cent stake in the lender at the end of the June quarter.

Vodafone Idea — where retail and HNI investors account for 17.73 per cent of the total 27.95 per cent public holding — also saw selling by mutual funds. These funds held 13.10 crore shares in the telecom operator as on August 31 compared with 30.04 crore shares as on July 31. In value terms, MFs now hold Rs 80 crore worth of Vodafone shares compared with Rs 248 crore shares earlier.

Lupin, where Rakesh Jhunjhunwala holds shares worth Rs 700 crore, was among the top MF buys for the month. Mutual funds held 5.92 crore Lupin shares as on August 31 compared with 5.13 crore in July. In value terms, they owned Rs 5,668 crore worth of Lupin shares compared with Rs 5,676 crore in July.

In Escorts, MFs held 88 lakh shares worth Rs 1,184 crore at August-end, against 73 lakh shares worth Rs 860 crore as of July-end. Jhunjhunwala owns about Rs 880 crore worth of Escorts shares as of today.

MFs sold YES Bank, Vodafone Idea; tweaked stakes in these Jhunjhunwala stocks
Jhunjhunwala, often called Big Bull, entered Indiabulls Housing and SAIL in the June quarter. While SAIL was the funds’ biggest sell in the largecap pack, Indiabulls Housing was their biggest buy in the smallcap pack, data compiled by ICICI Direct suggests.

MFs held Rs 1,962 crore worth SAIL shares at August-end, against Rs 2,987 crore at July-end. They owned Rs 344 crore worth Indiabulls Housing shares as of August-end, up from Rs 277 crore at July-end. Jhunjhunwala owns about Rs 700 crore worth of SAIL shares and just over Rs 200 crore worth of Indiabulls Housing shares.

MFs sold YES Bank, Vodafone Idea; tweaked stakes in these Jhunjhunwala stocks
Jubilant Ingrevia, another stock Big Bull has invested in, was on MFs’ sell radar. Funds cut their holding in this stock to Rs 38 crore from Rs 73 crore on a month-on-month basis. In Edelweiss Financial Services, mutual funds’ holding fell to Rs 55 crore from 95 crore.



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Banks call on government to ease pressure on India’s Vodafone Idea, BFSI News, ET BFSI

Banking & Finance

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By Nupur Anand and Aftab Ahmed

MUMBAI: Banks led by State Bank of India (SBI) have called on the Indian government to give debt-laden Vodafone Idea more time to clear its tax dues and spectrum fees, two bankers and a government official familiar with the matter said.

An Indian court last year ordered the mobile carrier, a joint venture between the Indian unit of Britain’s Vodafone Group and Aditya Birla Group’s Idea Cellular, to pay just over $8 billion to the government to settle long-standing dues. Vodafone has a stake of about 44% in the company and Aditya Birla owns nearly 27%.

In June, Vodafone Idea’s then non-executive chairman Kumar Mangalam Birla warned that without a government reprieve the Indian mobile carrier’s “financial situation will drive its operations to an irretrievable point of collapse”.

Vodafone Idea’s gross debt as of June 30 was 1.9 trillion rupees, comprising of deferred spectrum payment obligations of 1.06 trillion rupees and an adjusted gross revenue liability of 621.8 billion rupees, its latest stock exchange filing in June showed.

The adjusted gross revenue is the usage and licensing fee that telecom operators are charged by the Indian government.

The mobile operator also reported that it owes 234 billion Indian rupees ($3.18 billion) to financial institutions.

Senior SBI officials and representatives of the Indian Banks’ Association (IBA) met finance and telecom department officials this month and proposed an immediate breather on the repayment of spectrum dues, the two bankers and the government official, who requested anonymity, told Reuters.

“We’ve had these discussions with the banks but the issue is the finance ministry needs to be comfortable with the measures,” the government official said.

SBI, IBA, and the finance and telecom departments did not respond to Reuters requests seeking comment.

The government is also evaluating whether to take a small stake in financially struggling Vodafone Idea, in order to allay investor concerns regarding the future of the telco.

The company is facing a repayment of 5-10 billion rupees of non-convertible debentures around January, one of the bankers said.

Vodafone Idea declined to comment. Vodafone Group did not immediately reply to an email seeking comment. An Aditya Birla Group spokesman declined to comment.

Vodafone Idea had cash and cash equivalents of 9.2 billion rupees at the end of June, a transcript of a company conference call published on its website said.

“All eyes are on New Delhi right now as banks are getting increasingly nervous,” another banker with exposure to Vodafone Idea said.

The bankers have also proposed providing some relief to Vodafone by restructuring its dues, one government official and two bankers said.

Birla stepped down as chairman early last month after appealing for the government bailout.

The government has been considering a broader package to help a telecom industry disrupted by the 2016 entry of Mukesh Ambani-controlled Reliance Jio, which shook up the market with its free voice and cut-price data plans.



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IDFC First Bank aims retail loan book growth of 25 per cent on long-term basis, BFSI News, ET BFSI

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Private sector IDFC First Bank is aiming its retail loan book to grow by 25 per cent on a long-term basis and expects the mortgage lending to account for 40 per cent of its loan book going forward. Bank’s profits before provisioning are low currently because of the DFI (development financial institution) background with higher cost of legacy liabilities, and due to the set-up cost of a new bank, V Vaidyanathan, Managing Director and CEO, IDFC First Bank, said in bank’s Annual Report 2020-21.

“This is getting fixed at a quick pace because of our strong profitability on an incremental basis…the underlying quality of the bank we are building is not entirely visible at this stage to you,” he said in his message to the bank shareholders.

Contending that it was not right to compare IDFC First Bank with the already established 20-30 years old banks or with entities who were profitable when they converted to banks, he said “the power of incremental profitability is lost in the noise”.

IDFC First Bank reported a net profit of Rs 452 crore in 2020-21. There was a net loss of Rs 2,864 crore in FY20.

The erstwhile IDFC Bank had merged non-banking finance company Capital First with itself in December 2018, post which Vaidyanathan took over as the managing director and CEO of IDFC First Bank.

He said IDFC First Bank has strong incremental profitability of retail lending as well as corporate lending business.

In retail, the incremental borrowing cost is less than 5 per cent, the lending rate is over 14 per cent, thus the incremental spreads on retail is over 9 per cent.

“We have specialisation in these segments and our credit costs (provisioning) are expected to be about 2 per cent based on the combination of products we finance. Thus our incremental ROE (return on equity) in the retail lending business is estimated at 18-20 per cent,” Vaidyanathan added.

There is strong incremental profitability of corporate lending business with estimated incremental business ROE at 14-15 per cent. However, he said that this is not visible on the bank’s books because of the higher cost of Rs 1,000 crore from legacy liabilities and set up costs in retail business as it is a new bank.

It is carrying Rs 27,936 crore of fixed rated liabilities at 8.66 per cent, as it converted from a DFI to a bank.

“When our bank will replace this let’s say 5 per cent, we would save about Rs 1,000 crore per year on an annuity basis compared to today. This is a legacy issue on the liability side and will go away with time,” he noted.

On set up cost since merger, IDFC First Bank has invested in 390 branches, 565 ATMs, added over 12,000 employees, boosted technology and scaled up many new businesses like credit cards, wealth management, gold loans, prime home loans among others.

These investments are giving us a negative drag today but this will become profitable with scale, Vaidyanathan said.

“The negative drag because of high cost liabilities will go away as the bank will repay these liabilities on maturity. And the negative drag because of investments will go away with scale,” IDFC First Bank said.

Thus the highly profitable retail and wholesale businesses will shine the results. “Our lending business is immensely profitable. We expect to grow the retail book by nearly 25 per cent on a compounded basis for a long period of time.”

“This is already playing out over the last two-and-a-half years, as the NIM (net interest margin) has already expanded from 1.84 per cent pre-merger to 5.09 per cent in Q4 FY 21 and further to 5.51 per cent in Q1FY22. We expect profitability to increase as we expand the loan book,” Vaidyanathan added.

The lender is also expanding customer segments to cover prime home loans and has lowered interest rates.

“We can sustainably pursue prime home loans, the safest category of loans. We expect mortgage backed loans to form 40 per cent of our loan book in due course,” said the official.

He said the bank is also targeting a 2-1-2 formula to keep its gross non-performing assets (NPAs or bad loans) at 2 per cent, net NPAs at 1 per cent and provisions at 2 per cent on a steady basis. In FY21, its gross NPAs were over 4.15 per cent and net NPAs stood at 1.86 per cent.

Speaking about bank’s exposure to cash-strapped telecom player Vodafone Idea, the MD told the shareholders that he expects the government to support the industry, as out of the total dues of the telecom player, as high as Rs 1.5 lakh crore are owed to the government only.

“…hence they will be keen to solve this issue. In any case, we have a lot of growth capital by our side. We will peruse the matter through law of the land.”

He said a “one-off incident does not dent the long-term story”.

Bank’s exposure to Vodafone Idea stood at Rs 3,244 crore as of June 30, 2021. Among others, the bank said it plans to raise up to Rs 5,000 crore debt capital and will seek shareholders’ approval in the annual general meeting (AGM) next month.

After assessing its fund requirements, the board of directors of the bank in July 2021 have proposed to obtain consent of the members of the bank for borrowing funds from time to time, in Indian or foreign currency by issue of debt securities on private placement basis, up to an amount not exceeding Rs 5,000 crore, it said.

Bank’s 7th AGM is on September 15, 2021.

The bank will also seek their consent to re-appoint Vaidyanathan as the MD&CEO for a period of three years from December 19, 2021.

He was appointed to head the bank for a period of three years from December 19, 2018.

His term would conclude on December 18, 2021 and the board of the bank had approved his appointment for another three years in June 2021, subject to approval of shareholders and RBI.

“Accordingly, the bank has filed an application with the RBI for re-appointment of V Vaidyanathan as the MD & CEO of the Bank. The approval of RBI is awaited.”

The approval of the members is now sought for his reappointment for a period of three consecutive years commencing from December 19, 2021 up to December 18, 2024 (both days inclusive), it added.



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Voda Idea Q1 net loss widens to Rs 7312.9 crore; ARPU falls to Rs 104, BFSI News, ET BFSI

Personal Finance

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Vodafone Idea (Vi) posted a net loss of Rs 7312.9 crore in the fiscal first quarter compared to Rs 6985.1 crore in the previous quarter, hurt by slowdown in economic activities which dragged down the revenues of the debt laden telco.

The third-largest operator reiterated its viability concerns unless it manages to raise funds, which in turn depends on the status of statutory dues that it owes the government, and also on other factors such as negotiations with lenders on better terms for repayment.

“The Company’s financial performance has impacted its ability to generate the cash flow that it needs to settle/ refinance its liabilities and guarantees as they fall due, which along with its financial condition, is resulting in material uncertainty that casts significant doubt on the Company’s ability to make the payments mentioned therein and continue as a going concern.,” India’s only loss-making private operator said.

Total quarterly revenue for the cash-strapped operator fell to Rs 9152.3 crore in the April-June from Rs 9,607.6 crore when compared sequentially, the company said in a notice to the stock exchanges on Saturday.

Adjusted gross revenue (AGR), is the moot issue between Department of Telecommunications (DoT) and Vi, and the telco has has filed a review petition in the Supreme Court against DoT’s calculation “errors”.

The DoT has asked for Rs 58,254 crore from Vi, of which the telco has paid Rs 7,854 crore. The telco Saturday said that as of June end, its AGR liabilities, including interest, stood at around Rs62,180 crore, according to DoT’s calculations.

Vi said that the total debt of the Group stands at Rs 191,588.8 crore of which the next instalment of the AGR liability – of around Rs9,000 crore – and debt amounting to Rs 16,853.4 crore is payable in next 12 months.

The results are the first after Aditya Birla Group chairman Kumar Mangalam Birla quit as Vodafone Idea non-executive chairman and as a director on the boad. His resignation had come less than two months after he wrote to the government that he is willing to give up his stake in Vi to any government entity, which can ensure the telco’s survival.

Funds are now the telco’s lifeline and the operator on its attempts to raise Rs 25,000 crore said ” We continue to focus on executing our strategy to keep our customers ahead, and our cost optimization plan remains on track to deliver the targeted savings. We are in active discussion with potential investors for fund raising, to achieve our strategic intent,” said Ravinder Takkar, MD & CEO.

Both parents – Vodafone Group and the ABG – though have refused to infuse fresh equity into the cash strapped telco. The company had cash & cash equivalents of Rs. 9.2 billion at June end.

“The said assumption of going concern is essentially dependent on its ability to raise additional funds …successful negotiations with lenders for continued support/additional funding, monetisation of certain assets, outcome of the review petition filed … Supreme Court and clarity of the next instalment amount, acceptance of its deferment request by DoT and generation of cash flow from its operations that it needs to settle/renew its liabilities/guarantees as they fall due,” Vi said.

It added, “As result of earlier rating downgrades, certain lenders had asked for increase of interest rates, and additional margin money/security against existing facilities. The Group has exchanged correspondences and continues to be in discussion with the lenders for the next steps/ waivers”. Also, the company needs to provide additional bank guarantees of Rs 975.7 crore to avail additional moratorium of one year on spectrum installments for November 2012, February 2014 and October 2016 auctions, amounting to Rs 6439.2 crore. Guarantees amounting to Rs 13,358 crore are due to expire during the next 12 months.

In its review petition, Vi said it has “outstanding utilised facilities” of approximately Rs 47,000 crore from banks, non-banking finance companies (NBFCs) and mutual funds, of which Rs 25,000 crore is from public sector banks, over and above the amount due to DoT.

The company said its subscriber base declined by 12.3 million to stand at 255.4 million subscribers as against rivals Jio and Airtel who have 440.6 million and 321.23 million, respectively. The telco said pandemic related lockdowns impacted gross additions but despite that, its 4G user base was steady at 112.9 million 4G customers.

Its quarterly earnings before interest, tax, depreciation & amortization (Ebitda) reduced to Rs 3,707.7 crore from Rs4,408.7 crore.

Ebitda margins contracted to 40.5% from 45.9% in the previous quarter.

The operator’s average revenue per user (ARPU) was Rs 104, lower than Rs 107 clocked in the previous quarter. Rivals Bharti Airtel and Reliance Jio, have posted an ARPU of Rs 146 and Rs 138.4 respectively in the April-June quarter.



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Banks to DoT, BFSI News, ET BFSI

Banking & Finance

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Conversion of debt of the stressed telecom player Vodafone Idea Ltd (VIL) into equity could be an option to emerge out of the crisis, lenders led by State Bank of India (SBI) have suggested to Department of Telecommunications (DoT). DoT had called senior bank officials on Friday to discuss the stress in the telecom sector arising out of the Supreme Court order last month on the adjusted gross revenue (AGR)-related dues payable by telecom majors, including Vodafone Idea and Bharti Airtel, sources said.

The top court has given a time period of 10 years to telecom service providers struggling to pay Rs 93,520 crore of AGR-related dues to clear their outstanding amount to the government.

Bankers also told senior DoT officials that conversion of debt of VIL into equity is an option but not a sustainable one, sources said, adding that since VIL had not defaulted on its debts so far, they cannot take any action yet.

In a bid to keep a company a going concern, banks have used the option of converting debt into equity in many stress cases in the past.

Capital infusion by promoters is the best option in the given scenario, sources said quoting bankers.

The UK-based Vodafone has a 45 per cent stake while Aditya Birla Group owns a 27 per cent stake in the VIL.

Lenders, both public and private, stare at a loss of Rs 1.8 lakh crore in case VIL collapses. A large part of the loans to the lender is in the form of guarantees with public sector banks having a lion’s share of the debt.

Among the private sector lenders, Yes Bank and IDFC First Bank may be impacted the most. As a precursor, some private lenders with a funded exposure have already started making provisions.

For example, IDFC First Bank has marked the account of VIL as stressed and has made provisions of 15 per cent ( Rs 487 crore) against the outstanding exposure of Rs 3,244 crore (funded and non-funded).

“This provision translates to 24 per cent of the funded exposure on this account. The said account is current and has no overdues as of June 30, 2021,” the lender had said in its Q1 FY’22 investor presentation, referring to the account as “one large telecom account”.

According to official data, VIL had an AGR liability of Rs 58,254 crore out of which the company has paid Rs 7,854.37 crore and Rs 50,399.63 crore is outstanding.

The company’s gross debt, excluding lease liabilities, stood at Rs 1,80,310 crore as of March 31, 2021. The amount included deferred spectrum payment obligations of Rs 96,270 crore and debt from banks and financial institutions of Rs 23,080 crore apart from the AGR liability.

In a backdrop of such large liabilities, both the promoter Vodafone (45 per cent stake) and Aditya Birla Group (27 per cent stake) expressed their inability to bring in additional capital.

Writing a letter to Cabinet Secretary Rajiv Gauba in June, Aditya Birla Group Chairman Kumar Mangalam Birla said investors are not willing to invest in the company in the absence of clarity on AGR liability, adequate moratorium on spectrum payments and most importantly floor pricing regime being above the cost of service.

“It is with a sense of duty towards the 27 crore Indians connected by VIL, I am more than willing to hand over my stake in the company to any entity-public sector/government /domestic financial entity or any other that the government may consider worthy of keeping the company as a going concern,” Birla said in the letter.

Birla has quit the post of non-executive chairman post of the floundering telecom giant last week. PTI DP ANZ ANS ANS



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Indian bankers in talks as court rulings threaten over $6 billion in loans

Banking & Finance

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Informal talks are taking place to deal with the fall-out from two rulings by the Supreme Court that threaten the repayment of loans totalling nearly ₹500 billion ($6.73 billion) to some of India’s largest banks, bankers close to the matter say.

Any failure to recoup the money adds to stress in the banking sector, which is already dealing with an increased level of bad loans and reduced profits because of the impact of the Covid-19 pandemic.

Biyani-Ambani deal in trouble as Supreme Court rules in favour of Amazon

Last week, the Supreme Court effectively blocked Future Group’s $3.4-billion sale of retail assets to Reliance Industries, jeopardising nearly $2.69 billion the retail conglomerate owes to Indian banks.

That ruling was delivered days after the Supreme Court rejected a petition to allow telecom companies to approach the Department of Telecommunications to renegotiate outstanding dues in a long-running dispute with Indian telecom players.

Following SC ruling, NCLT to pause hearing on Future-Reliance deal

That raises concerns, bankers say, over whether Vodafone Idea will repay some ₹300 billion ($4.04 billion) it owes to Indian banks and billions of dollars more in long-term dues to the government.

Future of Future?

Two bankers, speaking on condition of anonymity, said negotiations were taking place to try to limit potentially severe consequences.

Loans to Future worth nearly ₹200 billion were restructured earlier this year, giving it more time to come up with repayments due over the next two years, but that was on the premise that Reliance would bail it out, the bankers said.

Future group did not immediately respond to a request for comment.

Should Future be taken to a bankruptcy court, bankers say they are concerned they will have to take haircuts on the loans of more than 75 per cent.

“The immediate apprehension is that the restructuring deal will fall through for banks by December,” said a banker at a public sector bank that has lent money to Future.

Future’s leading financial creditors include India’s largest lender State Bank of India, along with smaller rivals Bank of Baroda and Bank of India.

Bank of India, the lead bank in the consortium lending to Future, did not immediately respond to an emailed request for comment.

Vodafone Idea

Banks have also started discussing Vodafone’s debt to lenders of nearly ₹300 billion. Top lenders to Vodafone include YES Bank, IDFC First Bank and IndusInd Bank, as well as other private and state-owned lenders.

Vodafone, YES Bank, IDFC First Bank and IndusInd did not immediately respond to a request seeking comment.

“Even though banks have the option of restructuring loans in case the company defaults, it will only make sense if there is clear cash flow visibility, which is not the case right now,” a senior banker at a public sector bank said on condition of anonymity.

Already, at the end of March, Indian banks had total non-performing assets of ₹8.34 trillion ($112.48 billion), the government has said. It has yet to provide more updated figures.

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Govt may have to take the biggest hit if Vodafone Idea fails, BFSI News, ET BFSI

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NEW DELHI: With outstanding dues of nearly Rs 1.6 lakh crore in spectrum payments and AGR dues, the government may be the biggest loser in case Vodafone Idea collapses under crippling losses and heavy debt.

The hit for the government just doesn’t stop here. If one adds the outstanding Rs 23,000 crore owed to the banks, the impact could be one of the biggest in corporate history as a large part of the loans (65-70%) is extended by state-run lenders. The banks have further extended guarantees worth thousands of crores to the company, which also run the risk of defaults.

“The telecom department and the national exchequer would lose the most in case of a collapse of Vodafone Idea. The picture looks grim considering the poor recoveries and unrealised outstanding after the collapse of Anil Ambani’s Reliance Communications and Aircel, where too several thousands of crores of rupees remain locked. Taxpayers stand to lose the most,” an analyst with a leading brokerage told TOI.

Cumulatively, the company currently has a debt of Rs 1.8 lakh crore, and has been bleeding financially with losses pegged at Rs 7,000 crore during the March quarter. The debt tops Rs 1.8 lakh crore, according to ICICI Securities. “We see payment of liabilities coming soon, while fund availability remains a challenge,” it said.

According to numbers sourced from various analysts and Vodafone Idea’s financial results, at Rs 107, the company remains precariously placed with the lowest average revenue per user (Arpu) among its peers. Reliance Jio reported Arpu of Rs 138 and Bharti Airtel at Rs 145, though the latter has said time and again that at least Rs 200 Arpu is needed to nurse the capital-intensive sector back to health.

Vodafone Idea’s poor outlook was evident after the SoS calls given by its promoters, who have refused to make any further investments into the company, and are asking the government to support its survival. Goldman Sachs said that it expects capex for Vodafone Idea to remain under pressure, “resulting in continued market share loss”. It said that between December this year and April of 2022, the company has about Rs 22,500 crore of dues (debt, AGR and spectrum) payable.



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DoT engages with banks to find solution to stress in telecom sector, BFSI News, ET BFSI

Personal Finance

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The Department of Telecommunications (DoT) has initiated discussions with banks to address financial stress in the telecom sector, particularly Vodafone Idea Ltd (VIL) that urgently requires fund infusion to stay afloat.

There was a meeting of DOT officials and senior bankers on Friday on the issue of Vodafone, sources said, adding that banks have been asked to look for a solution within the prudential guidelines.

According to sources, senior officials from the country’s biggest lenders State Bank of India and Bank of Baroda were also present among others in the meeting.

More such meetings are expected to take place in the coming days, they said.

Meanwhile, the finance ministry has asked public sector banks to collate and submit data related to their debt exposure to the telecom sector in general and VIL in particular.

Lenders, both public and private, stare at a loss of Rs 1.8 lakh crore in case VIL collapses. A large part of the loans to the lender is in the form of guarantees with public sector banks having a lion’s share of the debt. Among the private sector lenders, Yes Bank and IDFC First Bank may be impacted the most. As a precursor, some private lenders with a funded exposure have already started making provisions.

For example, IDFC First Bank has marked the account of VIL as stressed and has made provisions of 15 per cent (Rs 487 crore) against the outstanding exposure of Rs 3,244 crore (funded and non-funded).

“This provision translates to 24 per cent of the funded exposure on this account. The said account is current and has no overdues as of June 30, 2021,” the lender said in its Q1 FY’22 investor presentation, referring to the account as “one large telecom account”.

According to official data, VIL had an adjusted gross revenue (AGR) liability of Rs 58,254 crore out of which the company has paid Rs 7,854.37 crore and Rs 50,399.63 crore is outstanding.

The company’s gross debt, excluding lease liabilities, stood at Rs 1,80,310 crore as of March 31, 2021. The amount included deferred spectrum payment obligations of Rs 96,270 crore and debt from banks and financial institutions of Rs 23,080 crore apart from the AGR liability.

In a backdrop of such a large liabilities, both the promoter Vodafone Plc (45 per cent stake) and Aditya Birla Group (27 per cent stake) expressed their inability to bring in additional capital.

Writing a letter to Cabinet Secretary Rajiv Gauba in June, Aditya Birla Group Chairman Kumar Mangalam Birla said investors are not willing to invest in the company in the absence of clarity on AGR liability, adequate moratorium on spectrum payments and most importantly floor pricing regime being above the cost of service.

“It is with a sense of duty towards the 27 crore Indians connected by VIL, I am more than willing to hand over my stake in the company to any entity-public sector/government /domestic financial entity or any other that the government may consider worthy of keeping the company as a going concern,” Birla said in the letter.

Birla has quit the post of non-executive chairman post of the floundering telecom giant last week.

Giving relief to Vodafone on one front, the government has proposed to withdraw all back tax demands on companies with passage of ‘The Taxation Laws (Amendment) Bill, 2021’.

The 2012 legislation, commonly referred to as the retrospective tax law, was enacted after the Supreme Court in January that year rejected proceedings brought by tax authorities against Vodafone International Holdings BV for its failure to deduct withholding tax from USD 11.1 billion paid to Hutchison Telecommunications in 2007 for buying out its 67 per cent stake in a wholly-owned Cayman Island incorporated subsidiary that indirectly held interests in Vodafone India Ltd.

The Finance Act 2012, which amended various provisions of the Income Tax Act, 1961 with retrospective effect, contained provisions intended to tax any gain on transfer of shares in a non-Indian company, which derives substantial value from underlying Indian assets, such as Vodafone’s transaction with Hutchison in 2007 or the internal reorganisation of the India business that Cairn Energy did in 2006-07 before listing it on local bourses.

Using that law, tax authorities in January 2013 slapped Vodafone with a tax demand of Rs 14,200 crore, including principal tax of Rs 7,990 crore and interest. This was in February 2016 updated to Rs 22,100 crore plus interest.

A similar demand was also slapped on Vedanta Ltd, which bought Cairn’s India business in 2011. Both Cairn and Vodafone challenged the demand under bilateral investment treaties India has with UK and the Netherlands, and they both got favourable rulings recently.

Vedanta, from whom no tax recovery was made, too initiated arbitration to challenge the tax demand under the India-UK treaty. That arbitration award has not come yet.



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