Supreme Court’s rejection on 17 January of a review petition against its earlier ruling on the AGR issue is credit negative for the industry, says Fitch Ratings.
Vodafone Idea and Bharti Airtel will be particularly affected. The court’s rulings in this case could also have significant repercussions for India’s banking sector, as well as the country’s broader economic outlook.

The Supreme Court’s decision to reject the review petition is likely to lead the Department of Telecommunications (DOT) to demand that telecoms pay unpaid dues on licence fees and spectrum usage charges by 23 January 2020.

Fitch placed Bharti Airtel’s ratings on Rating Watch Negative (RWN) outlook on 30 October 2019, following the Supreme Court’s verdict on the definition of adjusted gross revenue (AGR).

Fitch Ratings said it forecasts Bharti Airtel’s FYE20 FFO-adjusted net leverage to be 2.3x-2.6x, close to the 2.5x level above which we would take negative rating action. Airtel raised about $7.6 billion in equity in the last 12 months. It raised $750 million of subordinated debt via perpetual bonds, on which Fitch assigns a 50 percent equity credit.

Vodafone Idea could face severe liquidity stress as a result of the tax case, as its cash balance of $2.2 billion as of September 2019 would be insufficient to pay its $6.3 billion of unpaid dues.

Vodafone Idea’s efforts to generate cash have been hampered by loss of subscribers and revenue to Reliance Jio, part of Reliance Industries.

Vodafone Idea and Bharti Airtel have jointly filed a moderation application with the Supreme Court seeking more time to pay the funds due. They may approach the government to obtain relief.

Vodafone Idea could raise cash through sales of assets, such as its 11 percent stake in Indus-Infratel or its 158,000 km of fibre networks. However, the company’s chairman has said that Vodafone Idea will close in the event it is unable to obtain relief from the Supreme Court or the government.

The banking sector’s exposure to telecoms operators stood at 1.3 percent of loans at FYE19, within which we believe Bharti Airtel and Vodafone Idea account for a significant share. Exposure to the telecoms sector is generally greater among private-sector banks than state-owned ones.