Financial lenders led by State Bank of India (SBI) have suggested to Department of Telecommunications (DoT) that the conversion of debt of Vodafone Idea (Vi) into equity could be an option to emerge out of the financial crisis.
DoT had called senior bank officials on Friday to discuss the stress in the telecom sector arising out of the Supreme Court order last month on the adjusted gross revenue (AGR)-related dues payable by telecom majors, including Vodafone Idea and Bharti Airtel, PTI reported.
Supreme Court has given a time period of 10 years to service providers to pay Rs 93,520 crore of AGR-related dues to clear their outstanding amount to the government.
Bankers told DoT officials that conversion of debt of Vi into equity is an option but not a sustainable one.
Since Vi had not defaulted on its debts, bankers cannot take any action yet. Banks have used the option of converting debt into equity in many stress cases in the past. Capital infusion by promoters is the best option in the given scenario.
The UK-based Vodafone has a 45 per cent stake while Aditya Birla Group owns a 27 per cent stake in the Vi. Lenders, both public and private, stare at a loss of Rs 1.8 lakh crore in case Vi 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.
Yes Bank and IDFC First Bank may be impacted the most. 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).
IDFC First Bank said this provision translates to 24 percent of the funded exposure on this account. The current account 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, Vi had an 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.
The company’s gross debt, excluding lease liabilities, stood at Rs 180,310 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.