Difficult For Vodafone Idea To Pay Upfront AGR Dues: Credit Suisse

Vodafone Idea will find it challenging to pay more than Rs 5,000 crore of incremental upfront dues in the AGR dues, according to brokerage, Credit Suisse.

In a report it said that after having paid Rs 6,900 crore of AGR dues, estimate is that Vodafone Idea would have Rs 6,000 crore of cash balance as of March 2020 assuming no incremental capex in fourth quarter of financial year 2020.

"With VIL not having access to incremental debt funding, it would be difficult for VIL to pay more than Rs 50 billion of incremental dues. On the other hand, having already paid 48 per cent of dues, incremental upfront payment will not be a problem for Bharti Airtel especially post the recent capital raise and declining leverage on back of improving profitability," Credit Suisse said.

VIL cash flow situation will be challenging post FY22. "We believe that VIL can manage its cash flow needs till FY22 on account of a two year moratorium (FY21 and FY22) on deferred spectrum debt.

However, we believe the company may find it challenging to service the AGR dues beyond FY22," the report said.

The report said that an ARPU of Rs 200 on subscriber base of 280 million would generate Rs 25,000 crore EBITDA after building in 300 bps reduction in license fees. Against the above EBITDA, the company would need to make Rs 15,700 crore of deferred spectrum payment and AGR dues ranging from Rs 4,700 crore to Rs 11,600 crore of depending on the tenure (5 years to 20 years) of staggered payment granted by the Supreme Court.

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Besides the regulatory charges, the company would also have to incur capex which currently stands at Rs 11,000 billion as well as repay non-spectrum debt in absence of roll over by lenders, the report said.

In continuation of June 11 hearing on AGR matter, telcos presented a staggered payment plan over 20 years while expressing inability to provide any new guarantees (neither bank guarantees nor personal guarantees of directors).

Instead both Bharti Airtel and Vodafone Idea suggested taking spectrum, license and existing bank guarantees lying with DOT as security for staggered payment.

During the course of hearing, the Supreme Court observed that in order to grant staggered payment a 'reasonable portion of AGR dues' need to be paid upfront to demonstrate commitment towards payment of AGR dues.

"While the court did not specify what constitutes a 'reasonable amount', we note that the highest dues relative to outstanding amount, has been paid by Bharti Airtel (48 per cent of total AGR dues as per DOT estimates) followed by 30 per cent by Tata and Vodafone Idea (VIL) has only paid 13 per cent of the outstanding dues. The SC has posted the next date of hearing in third week of July," the report said.