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MOSL: TELECOM-SC dismisses modification plea on AGR liability

TELECOM: SC dismisses modification plea on AGR liability

 

• India's apex court has come out heavily on the telcos filing the modification plea on AGR liability, compelling the DoT to raise demand notice with an immediate deadline.
• This leaves the telcos with limited options to get relief from legal or government sources. We note that the total AGR liability on telcos stands at INR1470b, of which Bharti/VIL (including spectrum) need to pay INR340b/INR440b.
• This could have far-reaching serious ramifications on the telecom and banking sectors with ripple effects on the overall economy, as VIL faces a risk of shutdown with large-scale debt default (INR1t), job losses and subscriber churn/annoyance. Ironically, the government, despite winning the suit, could see the biggest impact through deferred spectrum debt default INR900b.
• Bharti has created a war chest through its recent fund raise, which should allow it to comfortably comply with the verdict. A duopoly market will likely benefit it (along with RJio) with incremental EBITDA potential of INR100b in FY22 even after building in network cost increase with blue-sky EBITDA of ~INR550b (on pre-Ind-AS 116). We thus remain positive on Bharti. 

SC asks telcos to clear dues immediately

The Supreme Court (SC) has come out heavily on the government for not recovering AGR liability from telecom companies, despite already missing the deadline. Note that the telcos had filed a modification plea to allow them to engage with the DoT for verifying the amount and deciding the payment modalities. However, instead of offering any relief, the SC has questioned telcos’ money power to make DoT bend and in fact drawn contempt against the DoT officers and the telcos. The next hearing will be on 17th Mar’19 ordering the MDs and directors to be present. We note that no option for an out-of-court settlement is given, even if DOT is willing to work out modalities with the telcos. More surprising is that there is limited consideration toward the magnitude of payment – INR1,470b AGR liability for the entire telecom industry and INR600b for the two surviving telcos (INR780b incl. AGR liability for spectrum) with materially stressed balance sheets and depressed industry size.