New Delhi: On Tuesday, the Supreme Court will pronounce its order on the possibility of allowing telecommunications companies the phased payment of fees related to adjusted gross income (AGR). The verdict will decide the survival of Vodafone Idea Ltd, which still owes more than ₹50,000 crore for the Center in AGR installments and the only way to save it is to give the telco time to pay the fees.
Vodafone Idea requested 15 years to pay its AGR fees, including the spectrum usage fee, license fee, interest, penalties and interest on penalties. However, analysts and legal experts believe that this would only be sufficient if factors such as higher fees, reduced fixed costs, divestments and fundraising favor the telco. Anything less than 15 years old could threaten the business of the telecommunications company.
“In addition to a 15-year window, the Vodafone Idea business must make sense. Factors such as shareholders and investors willing to inject adequate capital and income will have come into play in the coming years. The fact that Vodafone Idea had confidence in the court at 15 years old confirms that the direction is positive in the business outlook, ”said Saurav Kumar, partner at IndusLaw.
Rival Bharti Airtel Ltd also applied for 15 years, despite fully covering the losses due to AGR quotas. Airtel has adequate liquidity to settle its quotas, according to the management of the firm led by Sunil Mittal. The Department of Telecommunications (DoT) estimated Airtel’s AGR fees at ₹43,980 crore, of which the telecommunications company has paid ₹18,000 crore.
Tata Teleservices Ltd, a Tata group company acquired by Airtel debt free and cashless, has applied for 7-10 years to settle its AGR installments of ₹16,798 crore.
Legal experts believe that the telecommunications companies involved could request a review of the AGR ruling.
Vodafone Idea faces liquidity stress that will require high cash flow to continue its business in addition to paying AGR fees, Motilal Oswal Financial Services Ltd said in a report. The telecoms operator will need more than double its average revenue per user (Arpu) to meet its payment obligations, according to the report. The Vodafone Arpu fell to ₹114 in the June quarter ₹121 in the fourth quarter of fiscal 2020. The loans to banks will also help the telco to stay afloat.
Vodafone Idea’s fundraising plan also depends on the SC’s decision. The telco is exploring fundraising options, but will decide the amount after AGR’s verdict.
“We are awaiting a conclusion as far as AGR is concerned, which will give us clarity on what kind of funding requirements we have,” said Akshaya Moondra, chief financial officer of Vodafone Idea, in a post-earnings analyst conference call. We are definitely looking for fundraising opportunities, “Moondra said.
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