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Why Vodafone Idea And Bharti Airtel Shares Are Crashing

Worry about the unfolding story in India’s telecom sector kept some of the largest fund managers and foreign portfolio investors (FPIs) awake during the Diwali weekend. This is after the Supreme Court (SC) on October 24 set a three-month deadline for telecom companies to pay their licence and spectrum dues to the government, which came as a shocker to most, as not many were expecting the court to set such a stiff deadline, a foreign fund manager investing in India told BusinessLine.

Market experts are expecting large telecom companies to default on their payment if the deadline is not extended by the government. Such a scenario could yet again affect banks that have lent money to telecom companies, experts said. Two foreign fund managers whom BusinessLine spoke to said they were not expecting the SC to set any deadline on payment of dues but only decide on the amount and hence, were surprised with Thursday’s order.

On Tuesday, as the market opened for trading after the long weekend, the share prices of Bharti Airtel, Bharti Infratel and Vodafone Idea took a pounding. While key indices Sensex and Nifty were trading with gains of around 1.5 percent, the share price of Vodafone Idea, at about 1 pm, was trading nearly 10 percent lower at Rs 3.8. The share price of Bharti Infratel, the largest telecom tower company, was down 8.15 percent at Rs 194, while Bharti Airtel was down 5 percent at Rs 353. The only exception among these telecom companies was the share price of Reliance Industries (RIL), which runs India’s largest telecom operator RJio. RIL’s share price was trading with gains of 2.8 percent at Rs 1,474. RIL, on Friday, announced a plan to make its telecom arm RJio debt-free, which market experts say came at very opportune time considering the SC order was damaging for the telecom sector.

“We give (telecom companies) three months’ time to deposit the amount, which is due and compliance be reported,” said the court order uploaded on its website on Friday.

Vodafone Idea and Bharti Airtel will be affected most by the SC order with pending licence fee and spectrum usage charge (SUC) dues of Rs 39,000 crore and over Rs 41,000 crore, respectively. Tata Teleservices, which sold its loss-making consumer mobility business to Airtel, faces dues worth nearly Rs 13,000 crore. Reliance Jio, the latest entrant in the sector and is the only profitable telco, faces licence fee and SUC dues of Rs 41 crore.

The worry is, whether the government, on account of the SC order, will declare these large groups defaulters if they fail to pay on time. It is learnt that one of the promoters of a large conglomerate has sought a meeting with highest ranking government officials and ministers. It remains to be seen if the government will delay the deadline, said a foreign fund manager investing in India for more than two decades.

Fund managers worry that if telecom companies are labelled as defaulters, the hit will have to be taken by some large banks, which could yet again vitiate the stock market and investment scenario in the country. Banks though hold pledged shares of group companies linked to the telecom company, fund managers said. These pledged shares could now become vulnerable.

The fear is that the government will soon issue demand notices to telecom companies for additional licence fees and SUC after the SC order. But fund managers, clueless on how the scenario will unfold, are just selling telecom shares or continuing with their short positions in Bharti Airtel, Vodafone Idea and Bharti Infratel, the three most vulnerable companies for now.―The Hindu Business Line


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