Voda Idea, Airtel may face hefty payouts if forced to cancel Huawei, ZTE deals

Vodafone Idea & Bharti Airtel could be forced to quickly pay $600-650 million and $300 million respectively in Chinese vendor dues, if they were to cancel existing equipment contracts with Huawei and ZTE and are barred from future dealings as well with the duo, a scenario that could cause more financial pain for Vodafone Idea.

“If Vodafone Idea and Airtel are suddenly barred from buying network gear from Chinese suppliers, Huawei and ZTE may have no choice but to step up efforts to quickly recover the money the two incumbent operators owe them for gear supplies,” an industry executive, aware of the matter, said.

Telcos, though, maintained there was no communication as yet from the government to restrict or stop their business involvement with Huawei and ZTE.

Vodafone Idea’s vendor payables to Huawei and ZTE are estimated at around $450 million and $150-200 million respectively, while Airtel is reckoned to owe Huawei around $300 million for network gear purchases.

Both telcos could also face potential penalties in case of premature cancellation of existing managed services and asset maintenance (AMC) contracts with the two Chinese vendors, with international arbitration a possible option. But a top industry executive said both Airtel and Vodafone Idea could legally counter any immediate dues settlement calls, or even contest fines, by citing any potential cancellation as a force majeure event, saying they were acting on government orders on national security grounds.

Last Thursday, ET had reported that the government might bar Chinese gear makers from supplying networks to state-run BSNL and MTNL and even restrict or prohibit private carriers from using Chinese gear after the recent border skirmish with the Chinese army in the Galwan Valley. At present, only VIL and Airtel buy network gear from Chinese suppliers in addition to European vendors, while Reliance Jio procures only from South Korean vendor, Samsung.

But if Huawei and ZTE are restricted in India "it’s likely that both may push for early settlement of their dues, which could further aggravate cash flow challenges for VIL, and even cause some short-term pain for Airtel as both are still grappling with the huge AGR (adjusted gross revenue) payouts," Rajiv Sharma, research head at SBICap Securities, said.

VIL’s AGR dues are a tad above Rs 58,000 crore, of which it has paid about Rs 7,000 crore, while Airtel’s is pegged at around Rs 43,980 crore, of which, it has cleared a little over Rs 18,000 crore.

An Airtel spokesperson dismissed such concerns saying it enjoys cordial relations with all its network gear suppliers and has enough cash to clear vendor dues, if required. The Sunil Mittal-led telco has “more than adequate cash flows to meet not just its financial commitments, but to continue to invest significantly.”

If Chinese vendors are barred from doing business in India, they are also likely to step up efforts to recover money from BSNL, which is estimated to owe ZTE Rs 1,300 crore and Huawei around Rs 100 crore.

At press time, VIL, Huawei and ZTE did not reply to ET’s queries.

India’s telcos have said geopolitical challenges must not be allowed to cloud commercial operations and decisions. They argued that geopolitical issues are the provenance of the government and such decisions are distinct and driven by specific considerations, which should be kept separate from commercial ones, the provenance of companies.