Telcom losses: Banks under stress, call for govt intervention

Vodafone Idea and Bharti Airtel on Thursday reported a whopping combined loss of nearly ₹74,000 crore in the September quarter as the leading telecom players were hit by statutory dues arising from a recent Supreme Court ruling.

While Vodafone Idea posted a loss of ₹50,921 crore — the highest-ever quarterly loss by any corporate in India — Airtel reported loss to the tune of ₹23,045 crore.

According to a report in the Indian Express, Sources in the banking and mutual fund (MF) industry say that if the telco fails to recover from the lows it has hit, it may put additional burden on banks and other financial institutions

Analysts said that the company's lenders, especially those who have not provided for the Vodafone Idea's Q2 loss, might struggle on the exchanges in the near term.

"Most private banks like HDFC, Kotak, Yes Bank, Axis Bank and IndusInd Bank are lenders of Vodafone Idea, but banks which may not have provided for the losses will have a difficult time in the near term," said Narendra Solanki, Head, Fundamental Research, AVP Equity Research, Anand Rathi Shares & Stock Brokers.

Banks are really concerned over the current situation and bank officials said that any relief for the telecom sector will not only help the sector players but even the banks are awaiting relief for the sector due to their huge exposure, reported Express

Even Mutual Funds, having an aggregate exposure of around ₹3,500 crore to Vodafone Idea, are the most concerned. Top officials with two leading Mutual Funds said that the Centre will have to intervene

“If telecom companies go bankrupt and end up in the NCLT, the banking sector will be hit hard. Banks have a huge exposure in the sector. We’re hoping for the best,” said the top official of a state-owned bank to Indian Express

In 2018 December quarter, Tata Motors logged biggest quarterly loss of ₹26,961 crore.

Vodafone Idea and Airtel have made provisions for their liabilities arising from the Supreme Court order in their latest September quarter results.

The apex court has upheld the government's position on including revenue from non-telecommunication businesses in calculating the annual Adjusted Gross Revenue (AGR) of telecom companies, a share of which has to be paid as licence and spectrum fee to the exchequer.

Stung by colosal losses, Vodafone Idea said its ability to continue as a going concern is dependent on obtaining relief from the government and positive outcome of the proposed legal remedy.

The company is also in the process of filing a review petition against the Supreme Court order.

Vodafone Idea has estimated a liability of ₹44,150 crore post the apex court order, and made a provision of ₹25,680 crore in the second quarter of the current fiscal.

The company said it has "accounted for the estimated liability of ₹27,610 crore related to license fee and ₹16,540 crore related to Spectrum Usage Charges up to September 30, 2019, including the interest, penalty and interest... of ₹3,3010 crore".

In the second quarter of 2018-19, Vodafone Idea reported ₹4,874 crore loss.

The company's revenue in the three months ended September 2019 rose 42 per cent to ₹11,146.4 crore.

Meanwhile, Bharti Airtel posted a staggering ₹23,045 crore net loss in the latest September quarter due to provisioning of ₹28,450 crore in the aftermath of the Supreme Court ruling.

The company said its net loss were on account of exceptional charge pertaining to provisioning of ₹28,450 crore towards the AGR dues, that included principal of ₹6,164 crore, interest of ₹12,219 crore, penalty of ₹3,760 crore, and interest on penalty of ₹6,307 crore.

Airtel CEO for India and South Asia, Gopal Vittal hoped that the government will take a considerate view on the adjusted gross revenue (AGR) matter given the "fragile state of the industry".

"On the AGR verdict of the Supreme Court, we continue to engage with the government and are evaluating various options available to us," he said.

Airtel management said it is reviewing its options and remedies available, including filing petitions before the SC and also seeking other reliefs, with others affected in the industry, from the government.

Airtel said that the group will need significant additional financing to discharge its obligations under the court judgement.

"...However, there can be no assurance of the success of management's plans to access additional sources of finance to the extent required, on terms acceptable to the group and to raise these amounts in a timely manner. This represents a material uncertainty whereby it may be unable to realise its assets and discharge its liabilities in normal course of business and accordingly may cast significant doubt on the Groups's ability to continue as a going concern," it said.

The consolidated revenue of Bharti Airtel was up by 4.7 per cent at ₹21,199 crore in the just-ended quarter.

As per latest estimates by Department of Telecommunications, Bharti Airtel faces a liability of around ₹62,187 crore (including share of Tata Group of companies and Telenor India), while Vodafone Idea may have to pay about ₹54,184 crore.

The remaining liability is with state-owned BSNL/ MTNL and some of the shut/ bankrupt telecom companies.

On Wednesday, the DoT shot off notice to telecom operators to pay their revenue share dues within three months as directed by the Supreme Court.

The DoT has given option to telecom operators to clear all the dues on self-assessment basis.