Lenders hope govt steps in to prevent AGR from becoming Voda Idea’s breaking point

Lenders to Vodafone Idea are factoring in some form of government intervention that will allow the company more time to repay its dues arising out of the Supreme Court’s order on adjusted gross revenue (AGR) liabilities.

Banks have no liability to telecom companies linked to the AGR order because these do not form a part of the guarantees they have given. However, any cash outflow due to these payments could severely dent debtheavy service providers such as Vodafone Idea.

“We are still in a wait and watch mode. AGR dues do not form a part of the guarantees given because these were new demands from the government. But there is clear stress for some companies such as Vodafone Idea, something we cannot deny. We are hopeful that the government will take note and act,” said the CEO of a public sector bank.


On Thursday, the apex court upheld the government’s contention of calculating past dues, such as licence fees and spectrum charges, on gross revenues, dismissing the companies’ plea to calculate the obligations on revenues linked only to telecom services.

Vodafone Idea, along with some 14 telcos, need to pay about Rs 1.47 lakh crore to the telecom department by a court-mandated deadline of January 23. The company’s dues calculated through this formula come to about Rs 53,000 crore.

However, with a total debt of Rs 2.2 lakh crore, the Indo-British joint venture cannot afford to take more debt. Bharti Airtel, the other large company with dues to pay, has shored up its cash position after a Rs 21,240-crore share sale earlier this month.

“Vodafone Idea is in a worse condition and it is a not a small company. It is the second largest in terms of subscribers and its demise could have serious ramifications inside as well as outside India. I think the government is well aware of these things and we should see some action next week,” said a senior executive at a private sector bank.


The banking sector’s total exposure to the telecom sector is around Rs 1.5 lakh crore, led by large lenders HDFC Bank (Rs 28,353 crore) State Bank India (Rs 28,009 crore) and Axis Bank (Rs 17,178 crore). ICICI Bank also has a large exposure, but it could not be ascertained.

Vodafone Idea’s large lenders include SBI (Rs 11,000 crore), IndusInd Bank (Rs 3,500 crore) and IDFC First Bank (Rs 2,500 crore).

By contrast, total mutual fund exposure is small at Rs 3,400 crore, out of which Rs 2,074 crore is with Franklin Templeton, which has already been marked down to zero.

“Most of the loans are with banks. And even among banks, some could take a larger hit than others like IDFC First, whose exposure is 11% of its net worth, and IndusInd Bank, from which this makes 9% of net worth,” said the head of fixed income at a large mutual fund.

Bankers point to the different ramifications of letting a company such as Vodafone Idea go under, especially at a time when the Indian economy is growing at the slowest pace in at least six years. “Vodafone Idea going down means 336 million Indians without a mobile service, which is essential in today’s times. It also means job losses for thousands of people. Then there are second-order effects like the message it sends to the foreign investors and overall business sentiment. Of course, banks will also have to take a hit,” said the executive with the private sector bank.

Bankers do not expect the government will allow such a large company to go under and create a duoply in such an important sector.

“The government has to give the company more time. May be, allow it to pay in installments. But some leeway will be given. We cannot afford to let this company go under. Something will be done,” said a senior executive at a large public sector bank that has a substantial exposure to Vodafone Idea.