The department of telecommunications (DoT) has initiated discussions with banks to address financial stress in the telecom sector, particularly Vodafone Idea Ltd (VIL) which urgently requires fund infusion to stay afloat.
There was a meeting of the DoT officials and senior bankers on Friday on the issue of Vodafone, sources said, adding that banks have been asked to look for a solution within the prudential guidelines.
According to sources, senior officials from the country’s biggest lenders State Bank of India and Bank of Baroda were also present among others in the meeting.
More such meetings are expected to take place in the coming days, they said.
Meanwhile, the finance ministry has asked public sector banks to collate and submit data related to their debt exposure to the telecom sector in general and VIL in particular.
Lenders, both public and private, stare at a loss of Rs 1.8 lakh crore in case VIL collapses. A large part of the loans to the lender is in the form of guarantees with public sector banks having a lion’s share of the debt.
Among the private sector lenders, Yes Bank and IDFC First Bank may be impacted the most. As a precursor, some private lenders with a funded exposure have already started making provisions.
IDFC First Bank has marked the account of VIL as stressed and has made provisions of 15 per cent (Rs 487 crore) against the outstanding exposure of Rs 3,244 crore (funded and non-funded).
“This provision translates to 24 per cent of the funded exposure on this account. The said account is current and has no overdues as of June 30, 2021,” the lender said in its Q1 FY’22 investor presentation, referring to the account as “one large telecom account”.
According to official data, VIL had an adjusted gross revenue (AGR) liability of Rs 58,254 crore out of which the company has paid Rs 7,854.37 crore and Rs 50,399.63 crore is outstanding.
ViL’s gross debt, excluding lease liabilities, stood at Rs 1,80,310 crore as of March 31, 2021. The amount included deferred spectrum payment obligations of Rs 96,270 crore and debt from banks and financial institutions of Rs 23,080 crore apart from the AGR liability.
In a backdrop of such a large liabilities, both the promoter Vodafone Plc (45 per cent stake) and Aditya Birla Group (27 per cent stake) expressed their inability to bring in additional capital.
Writing a letter to cabinet secretary Rajiv Gauba in June, Aditya Birla group chairman Kumar Mangalam Birla said investors are not willing to invest in the company in the absence of clarity on AGR liability, adequate moratorium on spectrum payments and most importantly floor pricing regime being above the cost of service.
Giving relief to Vodafone, the government has proposed to withdraw all back tax demands on companies with passage of The Taxation Laws (Amendment) Bill, 2021.
The 2012 legislation, commonly referred to as the retrospective tax law, was enacted after the Supreme Court in January that year rejected proceedings brought by tax authorities against Vodafone International Holdings BV for its failure to deduct withholding tax from $11.1 billion paid to Hutchison Telecommunications in 2007 for buying out its 67 per cent stake in a wholly-owned Cayman Island incorporated subsidiary that indirectly held interests in Vodafone Idea.
Global telecom gear makers are keeping a close watch on how things evolve for Vodafone Idea, but maintain that it is business-as-usual when it comes to on-ground network-related work.
A senior official of one of the European vendors said that things are not as yet “alarming” at this stage, while another player said it is too early to draw specific conclusions on outcomes, since the overall situation remains “fluid”.
The telecom equipment makers are closely monitoring the situation to see the next move by cash-strapped Vodafone Idea Ltd (VIL). The next course of action will be determined by how the situation evolves, they said.
