The government also accepted taking equity as payment for dues
Vodafone Idea Ltd has got a big breather, with the Cabinet on Wednesday clearing a proposal for giving telcos a moratorium on their adjusted gross revenue (AGR) dues as well as spectrum payments prospectively for the next four years. According to analysts, the move translates into a relief in the company’s cash outflow by over Rs 65,000 crore.
However, with VIL losing market share month-on-month, will it be able to use the improved cash flows to upgrade its network (from 2G to 4G) and get back on track? To be sure, it has got much more than what it had asked from the government— another two-year moratorium only on spectrum payments.
The government also accepted taking equity as payment for dues.
Deutsche Bank says that the acceptance of this principle could generate a lot of confidence for VIL's long-term future -although shareholder dilution will likely keep the investing case somewhat questionable.
Analysts say that even Bharti Airtel could go for the moratorium plan. It had dues of around Rs 43,980 crore, out of which it has forked out Rs 18,000 crore and needs to pay the rest in installments. Airtel has to make spectrum payments of over Rs 7800 crore annually.
The company recently decided to go for a rights issue of Rs 21,000 crore to reduce its debt (part of which was because of the AGR) and also prepare for the 5G spectrum auction. CEO Sunil Mittal said his aim was to reduce the company’s debt to 2x of EBIDTA.
As for Reliance Jio, sources say that because of its smaller AGR dues, the company has decided to pay the entire amount at one go. “So they would not be interested in a moratorium and pay over 8 percent,” says the source.
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