The Supreme Court’s recent dismissal of Vodafone Idea’s (Vi) curative petition regarding the computation of adjusted gross revenues (AGR) has raised significant concerns among banks about lending to the beleaguered telecom company. The court’s ruling has made banks wary of lending to the company, according to a report by ET.
Banking sources revealed that both Vi and its creditors had anticipated a favourable ruling, which influenced their business projections. However, the court’s decision has altered the financial landscape for Vi, which has been seeking funds to enhance its capital expenditures to compete with Reliance Jio and Airtel.
“Bankers said the court’s order significantly dented Vi’s financials because both lenders and the company had assumed a favourable ruling while making business projections,” the report said.
“No decision has been made by lenders on the loans but the SC order has definitely changed calculations. Government dues owed by the company were always the bone of contention because the numbers we are talking about are huge. Banks will have to reassess what they want to do in light of the latest development,” the report quoted a person familiar with the negotiations.
Reportedly, Vi has been in discussions with lenders for months, aiming to secure Rs 23,000 crore in term loans and an additional Rs 10,000 crore in bank guarantees. Banks have engaged a leading consultancy firm to conduct a techno-economic viability (TEV) report to evaluate Vi’s creditworthiness before deciding on loan approval. However, the recent Supreme Court ruling has led to a reassessment of Vi’s liabilities.
“The draft TEV report is still being deliberated on by banks but with this SC order the company’s liabilities have substantially increased. Taking those liabilities into account the company could need at least Rs 70,000 crore of loans which the banking system may not be in a position to give,” the report quoted a second person familiar with the negotiations.
As of March 31, Vi owed more than Rs 2 lakh crore to the government, comprising Rs 1.33 lakh crore in deferred spectrum payments and Rs 70,320 crore in AGR dues. With the Supreme Court denying relief on AGR payments, bankers will seek a concrete plan from Vi on how it intends to meet these liabilities.
Private sector banks have expressed reluctance to provide new funding for Vi, shifting the focus to public sector lenders, particularly the State Bank of India (SBI). SBI has indicated a willingness to consider funding only if other lenders participate in a consortium, leaving Vi’s funding prospects uncertain.
“Private sector banks have indicated that they will prefer to sit out any new funding for Vi, which leaves the ball in the court of PSU lenders led by SBI. Even SBI has indicated that it will only be game to fund the company if there are other lenders joining it in a consortium. Other options are public sector NBFCs like Power Finance Corp (PFC) and Rural Electrification Corp (REC),” the report quoted the first person cited above as saying.
Corporate Guarantee from Aditya Birla Group
Moreover, banks in informal discussions have suggested that a corporate guarantee from the Aditya Birla Group could make lending to Vi more viable. However, there has been no response from the group regarding this proposition, the report said.
“Only a strong guarantee from the group can salvage the situation to make bank lending possible. As things stand now, everything is in limbo. The signal from Vodafone is also not good since it sold its entire stake in Indus Towers a few months ago. So, it’s all about what the Birla Group wants to do now,” the report quoted the second person cited above as saying.
In June, Vodafone Idea announced the sale of its 18 percent stake in Indus Towers for Rs 15,300 crore, out of its total 21.05 percent holding in the tower company.
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