- Sep 19, 2005
SC order on adjusted gross revenue for telcos could make Voda-Idea to shell out Rs 28,309 crore.
Vodafone Idea will seek a waiver of interest and penalties payable on its licence fee dues even as analysts said the telco could be bound for bankruptcy if it’s asked to shell out $4 billion (Rs 28,309 crore) after the Supreme Court ruled on the definition of adjusted gross revenue for telecom companies.
The Supreme Court judgement backing the government’s broader definition of adjusted gross revenue to include non-core items “has financial implications and represents a significant event with respect to the company,” Vodafone Idea said in an exchange filing Friday.
The telco is reviewing the ruling and plans to engage with the Department of Telecommunications to urge it to “consider granting relief, including a waiver of interest and penalties.”
Vodafone Idea’s stock plunged to a 52-week low of Rs 3.66 on Friday before closing at Rs 4.11 on the BSE. The shares had plunged over 23% after the court’s ruling on Thursday.
Analysts said if Vodafone Idea is denied relief by the government, it would have a negative cascading effect on DoT, Vodafone Idea’s bankers, promoters & its customers.
“An upfront liability (of Rs 28,309 crore) for Vodafone Idea may move it to the National Company Law Tribunal (NCLT) if the government does not salvage the situation,” IIFL Institutional Equities said. Such an outcome “would be a lose-lose situation for all major stakeholders as it raises the risk of Vodafone Idea’s Rs 90,000 crore spectrum debt and its over Rs 30,000 crore exposure to banks going bad,” it said.
Should Vodafone Idea take the NCLT route, it said, the government could lose out on Rs 12,000 crore of annual receipts it collects from the company as spectrum dues.
Its bankers could be staring at forfeiting a portion of loans and its promoters – UK’s Vodafone Group Plc and the Aditya Birla Group – could lose control of the company as banks would have exposure on promoter funding for the recent rights issue.
Vodafone Idea’s 320 million customers may face service disruptions if the company ends up in bankruptcy court, it added.
Credit Suisse said Vodafone Idea would need an immediate equity infusion, while brokerage Kotak said arranging another large share sale to fund huge licence fee pay outs won’t be easy for the promoters as the “amounts are a multiple of the company’s current market capitalisation,” which stood at a modest Rs 11,810.24 crore on Friday.
Analysts said things could really spin out of control if DoT asks the telco to shell out an additional Rs 11,000 crore towards outstanding spectrum usage charges, which is also computed based on AGR.
Against a total pay-out of $5.5 billion in unpaid licence fees and SUC dues, the telco has $3 billion of cash, noted Nitin Soni, director (corporates) at global rating company Fitch. The telco also faces “a shrinking subscriber base, reduced cash generation and a stretched balance sheet.”