Tag: Vodafone Idea

A collapse of Voda Idea will hurt IDFC First Bank, YES Bank most, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: The looming prospect of a financial crisis in India’s third-largest telecom operator, Vodafone Idea, will spell disaster for some of the country’s biggest private sector banks just when they were recovering from a multi-year bad loan cycle.

The refusal by existing promoters of Vodafone Idea to infuse cash in the debt-laden company and the Supreme Court’s recent dismissal of a plea for rectification of alleged miscalculation in adjusted gross revenue dues payable by the company to the government have condemned the telecom operator to bankruptcy, unless it can raise fresh capital.

Prospects of fund raising for the company look grim given that any new strategic investor will have to pour in billions of dollars that will largely be channelled to the government coffers and will not be reinvested in the company to prepare it for the new 5G world.

The resignation of Kumar Mangalam Birla as head of the company and his offer to the government to buy out Aditya Birla group’s stake is likely to further discourage potential investors.

In that backdrop, Vodafone Idea is unlikely to be able to service its gross debt of over Rs 1.8 lakh crore. The telecom operator owes at least Rs 28,700 crore to several state-owned and private sector lenders.

The highest exposure is with State Bank of India at Rs 11,000 crore followed by Yes Bank at Rs 4,000 crore and IndusInd Bank at Rs 3,500 crore. However, in terms of percentage of loan book, the biggest hit from Vodafone Idea’s default will be to IDFC First Bank as it has an exposure of 2.9 per cent of its loan book followed by YES Bank at 2.4 per cent and IndusInd Bank at 1.65 per cent.

According to media reports, IDFC First Bank has already marked Vodafone Idea as stressed and provided for 15 per cent of the outstanding debt.

While Vodafone Idea is a one-off large account instead of the torrent of defaults seen over the past 10 years, it could have a bearing on the earnings performance of these banks in the coming quarters, as they will have to make hefty provisions against these loan accounts.

No surprise then that SBI was the worst Nifty50 performer today, down 3.3 per cent. Shares of IDFC First Bank tanked over 5 per cent, while those of YES Bank 2 per cent.



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Banks to discuss next course of action on Vodafone Idea, BFSI News, ET BFSI

Banking & Finance

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NEW DELHI: Lenders to Vodafone Idea (VIL) are expected to hold talks to decide on the future course of action with regard to their exposure to the debt-laden telecom player which is struggling to stay afloat.

This comes in the wake of Aditya Birla Group chairman Kumar Mangalam Birla offering to hand over his stake in VIL to the government or any other entity so that the company remains functional.

Meanwhile, Birla on Wednesday stepped down as non-executive director and non-executive chairman of Vodafone Idea.

S S Mallikarjuna Rao, MD and CEO of Punjab National Bank, on Tuesday said the developments in the last few days were areas of concern for the banking industry, referring the AGR-related issues for the telecom players.

Rao, however, said PNB‘s exposure is not very high in VIL and it is not going to impact its balance sheet.

“However, we will be definitely discussing with other bankers to see what kind of action we need to take going forward considering the statement of K M Birla only yesterday,” Rao said, referring to the billionaire businessman’s offer to hand over his stake in VIL to the government or any other entity.

The Supreme Court has dismissed applications by telcos for recalculation of AGR-related dues.

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 apex court, in an order passed in September last year, had asked the telecom players to settle their AGR related dues worth Rs 93,520 crore towards the government over a period of 10 years.

VIL’s gross debt, excluding lease liabilities, stood at Rs 1,80,310 crore as of March 31, 2021.

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 Q1FY22 investor presentation, referring to the account as “one large telecom account”.

Writing a letter to Cabinet Secretary Rajiv Gauba in June, Birla, who holds around 27 per cent stake in VIL, 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.

Among the other players, the AGR liability of Bharti Airtel is Rs 43,980 crore, Tata group Rs 16,798 crore, BSNL Rs 5,835.85 crore and MTNL Rs 4,352.09 crore.

Bharti Airtel has paid the government Rs 18,004 crore, Tatas Rs 4,197 crore and Reliance Jio has cleared its entire dues of Rs 194.79 crore.

Anil Ambani-owned Reliance Communications owes Rs 25,194.58 crore, Aircel Rs 12,389 crore and Videocon Telecommunications Rs 1,376 crore. However, these companies are under liquidation process.

Companies like Loop Telecom, Etisalat DB and S Tel, which jointly owe the government Rs 604 crore, have shut down their India operations.



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Vodafone Idea lenders can potentially lose Rs 1.8 lakh cr if telco collapses, BFSI News, ET BFSI

Banking & Finance

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A fresh eruption in Vodafone Idea financial woes with the promoter K M Birla offering to hand over his equity to the government has worried the telco’s lenders who stare at a loss of Rs 1.8 lakh crore if the company collapses. “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.

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. Some private lenders with a funded exposure have already started making provisions.

The debt

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.

VIL’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.

The scenario

If fails to repay its dues to the government and these guarantees are invoked, it would immediately turn into debt and would soon be classified as a non-performing asset.

The hit on PSU banks will not be as large as their exposure because in recent years lenders have been demanding a substantially higher cash margin for their guarantees. IDBI Bank is understood to have up to 40% margins for the guarantees it has extended. But even then it will be large enough to wipe out profits for many.

What ahead?

The insolvency process can work only when there are buyers. In the case of Vodafone, the Rs 53,000-crore AGR (adjusted gross revenue) dues to the Centre are a deterrent. This is despite Birla being willing to write down his entire equity. The government dues cannot be avoided as the Centre cannot make an exception for one company. Even in insolvency cases, the department of telecom has claimed its dues to be that of a financial creditor although there have been attempts to mark them as operational creditors.

The uncertainty over DoT’s claims, which is already being experienced by lenders in the Reliance Communications

insolvency case, would make telecom resolutions a challenge. Lenders do not want to risk insolvency as this

would result in the exit of customers which was the case with RCom.

With the the company’s debt obligations being equal to 1.5% of the banking sector’s credit, experts have suggested the debt be converted into equity shares, the company be nationalised and perhaps merged with BSNL and MTNL. However, it seems highly unlikely the government will nationalise the company. On balance, they would reckon it is better to give up the revenues than act politically incorrectly in bailing out a private sector player—one with a foreign promoter.



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Voda Idea lenders fret over ‘too big to fail’ telco giant, BFSI News, ET BFSI

Banking & Finance

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Mumbai: A day after Kumar Mangalam Birla’s letter warning that Vodafone Idea (VIL) may reach an “irretrievable point of collapse” became public, banks are worried about the fate of the telecom major which, they say, is “too big to fail”.

Lenders, both Indian and global, have an exposure of Rs 1.8 lakh crore. A large part of this is in the form of guarantees. Some private lenders with a funded exposure have already started making provisions. However, the bulk of the exposure is to public sector banks.

If VIL fails to repay its dues to the government and these guarantees are invoked, it would immediately turn into debt and would soon be classified as a non-performing asset. The hit on public sector banks will not be as large as their exposure because in recent years, lenders have been demanding a substantially higher cash margin from Vodafone for their guarantees. IDBI Bank is understood to have up to 40% margins for the guarantees it has extended. But even then it will be large enough to wipe out profits for many.

For banks, recovery of debt is contingent on VIL remaining operational and retaining customers. While the company continues to have close to a fourth of the Indian market, its situation could change overnight if there is a default. According to bankers, the insolvency process can work only when there are buyers. In the case of VIL, the Rs 53,000-crore AGR (adjusted gross revenue) dues to the Centre are a deterrent. This is despite Birla being willing to write down his entire equity.

The government dues cannot be avoided as the Centre cannot make an exception for one company. Even in insolvency cases, the telecom department has claimed its dues to be that of a financial creditor although there have been attempts to mark them as operational creditors. The uncertainty over telecom department’s claims, which is already being experienced by lenders in the Reliance Communication insolvency case, would makes telecom resolutions a challenge. Lenders do not want to risk insolvency as this would result in the exit of customers which was the case with RCom.

Lenders say besides the company’s debt obligations being equal to 1.5% of the banking sector’s credit, VIL is a large telecom infrastructure provider. Several business applications run on their networks and the company is one of the largest providers of “internet of things” service. A bank executive said insolvency would be a worst-case scenario as there is a risk of customers migrating.



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Vodafone Idea lenders dial Finance Ministry, want relief for telco, BFSI News, ET BFSI

Banking & Finance

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A consortium of lenders to Vodafone Idea (Vi) has sought the finance ministry’s intervention to provide some relief to the cash-strapped operator, raising concerns over the telco’s survival amid dwindling cash balances.

The company’s shares plunged as much as 15% on the BSE Thursday, ending 8.8% down at Rs 9.07, after it announced a loss of Rs 7,000 crore in the March quarter on Wednesday.

The lenders’ move comes as the telco has written to the telecom department (DoT), pointing out that its fundraising talks have hit a wall because investors are wary of putting money into a sector hampered by “below-the cost” consumer tariffs. It has further said that it needs a year more to make spectrum payments of Rs 8,292 crore as it’s not generating adequate cash from operations and adjusted gross revenue (AGR) payments are siphoning away liquidity.

Banks remain Jittery

ET has seen a copy of the June 25 letter. “Last week lenders have written to the finance ministry and requested for relief, among which was deferment of spectrum dues,” said a senior bank official aware of the development. “Banks are a worried lot as they fear that no relief from the government could force the company into bankruptcy. They (Vodafone Idea) won’t be in a position to pay their dues.”

Lenders to the telco include IDFC First Bank, Yes Bank, IndusInd Bank, State Bank of India, Punjab National Bank and HDFC Bank, among others. “It is the policy of the bank not to comment upon individual account and its treatment,” an SBI spokesperson said. The other banks didn’t respond to queries.

Vodafone Idea lenders dial Finance Ministry, want relief for telco
Vi’s banks have been jittery for a while, fearing that the telco will fall behind on payments. As of last year, SBI had loaned Rs 11,200 crore to Vi, while PNB had advanced Rs 1,000 crore. Private banks led by IndusInd Bank (Rs 5,000 crore) and ICICI Bank (Rs 1,700 crore) are the other major lenders.

The company posted a loss of Rs 6,985.1 crore for the quarter ended March, wider than the Rs 4,540.8 crore loss in the October-December quarter, hurt by one-time expenses and continuing high depreciation, amortisation and finance costs and subscriber erosion.

Viability risks

The company again warned of risks to viability, which depends on raising funds, successful negotiations with lenders on continued support, refinancing of debt and monetisation of certain assets, among others. In the June 25 letter to DoT secretary Anshu Prakash, Vi flagged that the poor health of the telecom sector has been a deterrent in its efforts to raise Rs 25,000 crore via a mix of debt and equity, a plan it had announced last September.

“We are working on raising new funding for the last six months but the investors are not willing to invest in the company because they believe that unless there is significant improvement in the consumer tariffs, the health of the industry will not recover and they will incur a loss on their investment,” Vi said.



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Banks stare at huge telco debt as telecom auction starts, BFSI News, ET BFSI

Banking & Finance

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The much-awaited telecom spectrum auction that starts today is likely to balloon the already bloated debt of telecom companies.

Telecom companies, already saddled with huge debts and pending government dues payments, have raised or are in the process of raising funds ahead of the auction.

The auction

The government proposes to auction around 2,250MHz of the spectrum — worth approximately Rs 3.92 lakh crore at the reserve price — across various bands.

A total of 2251.25 MHz of airwaves, across 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz and 2500 MHz frequency bands have been put on the block. Many brokerages, however, have predicted that more than 80% of the spectrum would remain unsold, and the government to get less than Rs 50,000 crore.

Analysts say the moderate participation would largely be limited to the renewal of the expiries in the 800 MHz and 1800 MHz bands.

Telco debts

While the telecom companies are enjoying the Covid-led upsurge in business, they still grapple with huge debts.

As of September 2020, Bharti Airtel had about Rs 1.29 lakh crore in debt, and Vi about Rs 1.7 lakh crore in net debt and dues to the government. Analysts reckon that this debt may grow hugely after the spectrum auctions. Only Reliance Jio is debt-free.

Vodafone had gross debt of Rs 1,17,370 crore comprising deferred spectrum payment obligations to the government of Rs 94,200 crore and debt from banks and financial institutions of Rs 23,170 crore.

Bharti Airtel Ltd’s net debt, including lease obligations, rose to Rs 1.18 lakh crore compared with nearly Rs 1.13 lakh crore a year ago, according to its annual report for 2019-20.

The extent

Though most of the firms are heavily indebted they need to borrow for these auctions.

However, the banks would be in a quandary as extending more debts when the telcos are not generating much additional cashflows due to pricing constraint would be tricky.

Even at base price, the telcos need about Rs 1 lakh crore with the rest in installments over the next many years, but that upfront payment amount is also huge. To meet the new payment obligations, telco cashflows need to rise, which is a difficult proposition.

Fundraising

However, telcos have raised funds from the debt market too. Airtel has raised $1.25 billion overseas through senior and perpetual bonds, the largest fundraising by any Indian investment-grade issuer since January 2019. The company has priced $750 million worth of senior 10.25-year bonds at a yield of 187.5 basis points for an implied coupon of 3.250%. Vodafone, on the other hand, is looking to raise Rs 25,000 crore and is in talks for it.

The silver lining

The good thing is telco revenues are rising though the pricing power is yet to return.

Bharti Airtel had posted a net profit of Rs 854 crore for the third quarter ended December 2020, compared to Rs 1,035 crore loss a year ago, on the back of improved realisations and the strong customer addition.

Airtel logged its highest-ever consolidated quarterly revenue of Rs 26,518 crore in Q3 FY21, up 24.2% over the year-ago period.

Debt-ridden Vodafone Idea reported narrowing of consolidated loss to Rs 4,532.1 crore in the third quarter ended on December 31, 2020, mainly on account of a one-time gain from stake sale in Indus Towers.



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