Yesterday , Vodafone Idea broke a record of worst-ever quarterly corporate earning result in the history of Indian economy. A recent judgment by the Supreme Court on the issue of Adjusted Gross Revenue (AGR) has made the entire Telecom Sector (except Reliance JIO) sleepless. This judgement served a body blow to Airtel and Vodafone Idea. If not handled well, this would lead to another set of bankruptcy(ies).

While both Airtel and Vodafone Idea are in contact with government officials pursuing them for some bargain, the government so far has refused to relent. There are various speculations around how things will unfold from here on. Vodafone Idea’s bankruptcy is being the primary one, which has unsettled the bankers and MFs who have heavy lending exposure to the entity.

Both Vodafone Idea & Airtel are in a tight situation. The verdict being from Supreme Court cannot be challenged, though a petition for review can be filed. It seems, the ball actually lies in the court of the government. They may relent on the time horizon required to pay up the amount, they may levy interest/penalties for extension of time, and may accept part payment now along with higher payments in future. If the government decides, there are many ways to handle the situation.

Financials of Telecom sector have never been so bad. BSNL & MTNL, though government-owned companies, are like dead meat. Spectrum scams reduced the competition from 4-5 players in a circle to a mere 3. The price war initiated by JIO led to bleeding balance sheets of the other players, eventually leading to piles of debt. For information of the readers, telecom companies in India are the biggest borrowers as of today. Reliance Industries (Owner of JIO) is at number 1 spot with Rs 1.62 Lakhs Crores of Debt. Vodafone idea is at number 4 across all Indian corporates with outstanding loan of Rs 1.25 Lakhs Crores. Bharti Airtel is at number 6 with an outstanding debt of Rs 85 Lakhs Crores. Since the bulk of the penalty burden is on Airtel and Vodafone Idea, it’s not going to be an easy way forward for both the players.

A lifeline exists in the form of current free assets that both these players own. It is their business stakes and fibre assets that were created during good times. Bharti Airtel is a lot richer in this regard in comparison to Vodafone Idea. Given below is the comparative asset list that these companies may have to monetize to pay off the government:

Saving the Telecom sector is now an additional responsibility with the government. It is in the best interest of the economy as a whole. By allowing one or two players to go bankrupt, the government will inadvertently give birth to Monopoly or Duopoly at best, undoing the massive CAPEX done by players over the last 2 decades, and depriving subscribers the right to choose. 


By Sameer Rastogi

18 years of experience, PG in Finance and has delivered Wealth Management lectures at IIM Lucknow, IBS Gurgaon and IIPM Delhi. Contributed to various newspapers. Strength – Application of Economic fundamentals to Investment

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