Stress in the telecom sector could not only lead to Vodafone Idea going for bankruptcy proceedings, thereby turning the industry into a duopoly but could also have implications on the country’s banks that have significant exposure to the highly leveraged sector.
Telecom analysts with investment banks and securities firms have almost unilaterally pegged that the ball now lies in the government’s court and without intervention from the Department of Telecommunications, its future interests and those of the consumers may be affected.
Shares of Vodafone Idea on Friday plunged 25.21 percent to Rs 4.51 on the BSE after the Supreme Court’s rejection of a review of its order that put Rs 1.47 lakh crore liability of past dues on telecom companies. However, Bharti Airtel gained 5.4 percent to hit Rs 500. The SC on Thursday dismissed review petitions filed by telecom companies against its October 24, 2019 order that asked for inclusion of non-telecom revenues for calculating statutory dues such as license fee and spectrum usage charge. Dues, which total to Rs 1.47 lakh crore for 15 telecom companies including Airtel and Vodafone Idea, as per the October order, have to be paid by January 23.
Promoters of Vodafone Idea have earlier said they were unlikely to infuse any more equity in the company thus signaling a possible shutdown of the company in the face of a large liability towards the AGR-related payments. “Vodafone Idea’s chance of rustling up a high amount in a week’s time is practically zero. This may force Vodafone Idea into the NCLT (National Company Law Tribunal), which would be a lose-lose situation for all stakeholders — Vodafone Idea, government and the banking system,” IIFL Securities said in a research note.
As per industry estimates, the telecom exposure for banks stood at 1-3 percent of their overall debt exposure with State Bank of India, IDFC Bank and Yes Bank having the largest exposure to Vodafone Idea. “While a large share of overall telecom debt is with govt, non-govt debt is also meaningful, with around Rs1.8 lakh crore exposure to the three large telecom companies. Bank exposure at around Rs 1.3 lakh crore has also increased 45 percent year-on-year, 20 per cent quarter-on-quarter and is at 1-3 percent for various banks. Mutual funds also had around Rs 4,000 crore exposure to Vodafone Idea as of September 2019,” global investment banking firm Credit Suisse said. The firm said that given the uncertainty surrounding the existence of Vodafone Idea, it was suspending its rating and target price for the company.
Franklin Templeton MF has marked down its investments to zero in all debt schemes that held the papers of Vodafone Idea.
While the future appears bleak for Vodafone Idea, its rival Bharti Airtel may not be hurt as badly. In fact, sector experts peg Airtel to gain if Vodafone Idea heads over to bankruptcy proceedings. However, these gains may not come cheap. “Assuming no relief, a Vodafone Idea shutdown scenario looks highly likely, and just a matter of time, in our view. Hypothetically, if we assume that Bharti adds 40 percent of Vodafone Idea’s subscriber base, our analysis suggests that Bharti may need to at least invest $5 billion in spectrum to accommodate new subscribers,” SBICAP Securities noted. Kotak Institutional Equities said while further consolidation in the sector may cause “temporary-but-severe inconvenience to consumers”, it could prove beneficial for Airtel and “will more than make up for the AGR payout impact”.―Indian Express