New Delhi, Sep 14 (IANS): There is no relief for the embattled telecom sector and some of the new proposed packages of measures may only be applicable for dues of future periods.
The only area where the sector gets some 'relief' is that in the future, AGR will not be payable on non-telecom revenues such as interest, dividends, capital gains, etc. Considering the severe liquidity stress in the sector, no player enjoys these excluded revenue streams meaningfully anymore, and this move too will prove largely illusory.
The key measures in proposed package include no reduction/waiver for telecom players on dues of prior periods towards AGR, interest, penalty, etc. that were upheld by Supreme Court. Proposed interest rate reduction and penalty removal on overdues will only be applicable for dues of future periods, after a prospective date to be notified.
No extension of 10-year period decided by the apex court for payment of past dues on AGR, interest, penalty, etc. Instalments due in next four years will be deferred, but added equally over instalments due in the subsequent five years.
No waiver of even the interest on instalments of next four years for past AGR dues deferred as above. NPV of amounts due as per the Supreme Court order will be fully protected and recovered in subsequent five years.
No relief on payment instalments for past spectrum already acquired by telcos. Instalments due in next four years will be deferred, but spread equally over remaining instalments. Again, NPV will be fully protected.
Given the absence of any reduction in the aggregate liabilities on an NPV basis, it is not surprising the government has failed to secure any commitment from the most stressed player, VIL's promoter group, to reverse their publicly stated position and agree to infuse any equity into the Company, as a condition for securing the current package.
On the much talked about equity conversion, there is scant relief. Telcos will have an option, within a specified timeframe, to convert only the additional government dues on account of NPV interest protection (as a result of the above four-year deferral) into equity.
This amount has been quantified in the proposal at approx. Rs 16,000 crore for Vodafone Idea, Rs 9,500 crore for Bharti Airtel, Rs 3,000 crore for Reliance Jio and Rs 1,500 crore for Tatas.
The exact amount of the above will vary slightly depending upon date of completion of the equity issuance, if the option is exercised. For listed companies, the SEBI preferential allotment guidelines will be followed, adopting the ‘relevant date' as 30 days prior to the date of Cabinet decision, and with minimum issue price at par value of shares.
For Vodafone Idea, if the option is exercised, it will mean an issue price of Rs 10 per share, translating into 1,600 crore new shares to be issued, which is an increase of more than 50 per cent in its free float.
The proposal also states that the detailed modalities of the equity conversion are likely to be complex with several operational issues, and will be worked upon jointly by Finance Ministry, Communications Ministry, SEBI, etc., leaving very little certainty about the final contours.
For this very reason probably, the proposal builds in a safety feature that the government, at its sole discretion, and if it so desires, may at any time choose to take even the above relatively small amounts, wholly or partially, as cumulative, redeemable preference shares (which may or may not be convertible) instead of equity shares.
The amount for possible equity conversion is in any case too low, and will give no meaningful financial relief. For instance, for Vodafone Idea, the equity or preference share conversion option has been determined at approx. Rs 16,000 crore, which amounts to less than 10 per cent of its total DoT liabilities of over Rs 1,70,000 crore.
VIL's current highly unsustainable and over-stretched Debt:Ebitda level of nearly 10x will barely reduce by 1x, based on these proposals, leaving its ability to continue on a going concern basis still very much in doubt.
The industry will also be sorely disappointed on the question of the existing SUC charges of an average 3 per cent. The proposal says SUC will be scrapped only for spectrum acquired in future auctions. No relief from the levy on revenues from existing spectrum.
On Bank Guarantees too, while there is some rationalisation, but there is no immediate relief as the proposal states that existing BGs (including Performance BGs) for securitisation of payment instalments of past auctions, and those relating to disputed demands covered by Court orders, already held with DoT will not be returned/reduced.
The relief will only be for the future.