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15-yr period to pay AGR dues important for Voda Idea's survival: Analysts

The SC judgment has been mostly negative in the AGR cases, including this, believes ICICI Securities
The Supreme Court on June 11 asked telecom majors like Vodafone Idea and Bharti Airtel to file affidavits within five days outlining the roadmap of how they would pay the adjusted gross revenue (AGR) dues if a staggered payment option is accepted by the apex court.

The SC bench, headed by Justice Arun Mishra, and comprising S Abdul Nazeer and M R Shah, was hearing the petition filed by the Department of Telecommunication (DoT) seeking relief via 20-year staggered payment for the telcos' dues along with a waiver of interest and penalty.

The financially distressed Vodafone Idea has paid Rs 6,854 crore of its dues, of the Rs 58,254 crore-demand raised by the DoT. The company’s own assessment, however, pegs the dues at Rs 21,533 crore.

Meanwhile, Bharti Airtel has paid Rs 18,004 crore so far as against the DoT’s demands of Rs 43,980 crore. The company estimates its dues at Rs 13,004 crore.

The next hearing is on June 18.

ICICI Securities

The SC judgment has been mostly negative in the AGR cases, including this. The only good outcome is that SC did not reject the rescue plan, but raised certain tough questions such as: 1) SC felt the proposed 20 years was unreasonable, and 2) asked guarantees for outstanding payment.

Telcos can technically argue that 20 years is reasonable as it is the same period as their licenses / spectrum right-of-use. Our working shows the annual payment for Bharti and Vodafone Idea in case of amount pending to be payable in five years is Rs 6,500 crore and Rs 12,900 crore; in case of 10 years, it is Rs 3,900 crore and Rs 7,700 crore; and in case of 15 years, it is Rs 3,000 crore and Rs 6,000 crore, respectively. Anything less than 15 years would significantly curtail the ability of VIL to meet these obligations.

While Bharti Airtel can provide bank guarantees as it is already sitting on a huge cash balance, Vodafone Idea’s council indicated SC on its inability to give guarantees. Nonetheless, providing additional bank guarantee comes with increased cost. SC has also sought if directors of these companies can provide personal guarantees / undertakings and/or any other securities for payment dues. We see low probability of personal undertaking by directors for AGR dues.

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Edelweiss Securities

After a few stern orders directing telcos to deposit the entire AGR-related dues immediately, the Supreme Court (SC) today lent an ear to the government and to telcos’ demand for a deferred payment option.

We believe deferred payment over 15–20 years is critical to sustaining a three-private-player market. Considering the SC has made a comment on the possibility of personal guarantees by directors, the nature of security acceptable against dues could become a contentious issue. We believe telco promoters are unlikely to hand out personal guarantees; instead, accepting terms such as licence cancellation, no dividend/buyback till repayment, etc look more feasible. All said and done, today’s order is a milestone in the resolution of a longstanding issue, and likely to keep India a three-private player telecom market

Motilal Oswal Financial Services

In the event that the apex court grants a 20-year staggered option plan to the incumbents to pay their AGR dues, maintaining the net present value (NPV) of the balance AGR dues at an 8 per cent interest rate, this would result in cash outgo of Rs 27b/Rs 52b per annum for BHARTI/VIL over a 20-year period. Considering VIL’s liquidity constraints, it needs a ~50 per cent ARPU increase to achieve EBITDA of Rs 300b by FY22E. This is to bridge the gap of Rs 128b EBITDA in FY22 against cash requirement of a) Rs 165b in deferred spectrum liabilities, b) Rs 52b in annual AGR payment, c) Rs 30b in cash interest cost to lenders, and d) capex of nearly Rs 52b. This is assuming there is no further subscriber churn, which also seems unlikely given the weak network capability and negative consumer sentiment.

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