One week, Rs 1.47 lakh cr dues: What will telcos do?

With just one week left for them to pay over Rs 88,600 crore in past dues, Bharti Airtel and Vodafone Idea are left with the last legal remedy of filing a curative petition but such petitions are rarely admitted by the Supreme Court, analysts said on Friday. 

The Supreme Court on Thursday dismissed review petitions filed by telecom companies against its October 24, 2019, order that asked for the inclusion of non-telecom revenues for calculating statutory dues such as licence fee and spectrum usage charge. 

Dues, which total to Rs 1.47 lakh crore for 15 telecom companies including Airtel and Vodafone Idea Ltd (VIL), as per the October order, have to be paid by January 23. 

The January 23 deadline for payment may not apply to non-telecom companies which too have been asked to pay substantial amounts in past dues, Kotak Institutional Equities said in a note. 

"From a legal standpoint, the only option available to the telcos now is a curative petition," it said. 

The rules around curative petition are fairly tight as the petitioner has to establish that there was a genuine violation of principles of natural justice, it said adding that the court can impose 'exemplary' costs to the petitioner if the plea lacks merit. "We note that curative petitions are rarely admitted." 

ICICI Securities said Bharti Airtel has already raised capital of USD 3 billion, which should help it meet the burden. "But the same remains a herculean challenge for VIL -- a challenge that cannot be resolved without government intervention, in our view." 

Though Bharti Airtel and VIL can still file a curative petition, "the probability of resolution remains bleak," it said. 

UBS Group said the ruling raises risks for lenders to the companies. "IndusInd, Yes Bank and SBI appears to have relatively high exposure to Vodafone Idea," it said. 

"We do not have a view on whether the government will intervene and offer some relief in the form of a waiver and/or staggered payment terms," Kotak said. 

ICICI Securities said VIL promoters – the UK's Vodafone Plc and Aditya Birla Group -- have already mentioned that if the entire adjusted gross revenue (AGR) liability has to be paid, they will have to shut shop. 

"We don't see the situation for Vodafone Idea being salvaged without government intervention. Apart from other stakeholders in VIL, the government too could be one of the most impacted parties if the company shuts down as it is owed Rs 90,000 in deferred spectrum dues, besides the AGR liability. We also see an indirect impact on PSU banks if VIL fails to cough up the money." 

Kotak said Vodafone Idea management and promoters have been quite vocal about not wanting to throw good money after bad in case there is no relief is granted by the Supreme Court. "We believe it makes sense." 

"From a government perspective, it needs to consider the serious ramifications of further consolidation in the sector including loss of revenues for itself, banking sector NPAs and temporary-but-severe inconvenience to consumers," it said. 

Morgan Stanley said the AGR ruling for the telco industry would benefit Reliance Industries from both higher subscriber growth and tariff increases. 

"This could raise earnings up to 8 per cent for FY21, with a similar NAV impact. This partly also negates some recent challenges in the chemicals business, where margins touched below industry cash costs in December 2019," Morgan Stanley said. 

Increased probability of further consolidation in the sector is a positive for Reliance Jio and Bharti, the immediate hit of massive payouts for the latter notwithstanding. "Upside from further consolidation will more than makeup for the payout impact for Bharti," Kotak said. 

Following the October 24 Supreme Court order, the department of telecom estimated that the total liability of 15 telecom companies, including penalties and interest, would be Rs 1.47 lakh crore. 

It has estimated another Rs 2.4 lakh crore in liability for non-telecom companies such as State-owned gas utility GAIL India Ltd and power transmission firm PowerGrid, which had taken licences to trade broadband on optic fibre running along their pipelines and transmission lines. 

Sources, however, said no demand notice was served either on GAIL or PowerGrid and only assessment orders were issued which the two companies contested putting across facts on revenues earned from such licences. 

The assessment put GAIL’s liability at Rs 1.72 lakh crore and that of PowerGrid at Rs 21,000 crore. Another Rs 40,000 crore liability was assessed of Oil India Ltd. 

However, a demand notice was served in the case of GNFC for Rs 15,097 crore. 

The statutory liabilities in the case of Bharti Airtel adds up to nearly Rs 35,586 crore, of which Rs 21,682 crore is licence fee and another Rs 13,904.01 crore is spectrum dues (excluding the dues of Telenor and Tata Teleservices). 

VIL stares at unpaid statutory dues of Rs 53,038 crore, including Rs 24,729 crore of spectrum dues and Rs 28,309 crore in the licence fee.