Deferred spectrum payments won’t solve debt issues of telcos: Analysts

The move, which will give over Rs 42,000 crore of relief to the telcos, may not be enough to address the debt concerns of the troubled telcos and ‘much more was needed’ from the government, primarily on adjusted gross revenue (AGR), which may boos...

New Delhi: The government’s decision to defer spectrum payments by two years offers only temporary relief for ailing telcos, especially Vodafone Idea, which may face cashflow problems again in FY23, when it resumes paying the government for airwaves, analysts said.

The move, which will give over Rs 42,000 crore of relief to the telcos, may not be enough to address the debt concerns of the troubled telcos and ‘much more was needed’ from the government, primarily on adjusted gross revenue (AGR), which may boost stock prices if interest and penalties were waived, according to analysts.

“This (deferral) could mean Vodafone Idea being close to free cash flow (FCF) breakeven in FY21/FY22 (excluding any potential AGR liability), before turning FCF negative again in FY23,” analysts at Goldman Sachs Equity Research said Thursday, while cautioning that it would not improve the balance sheet leverage of Vodafone Idea, “which stood at 20x (net-debt-to-EBITDA)” as of September.


For Bharti Airtel, “the moratorium will help better meet any potential AGR related liability,” they added.

“We await clarity on whether this is the extent of relief that the government is willing to offer or whether there could be more measures,” analysts at Citi said.

Swiss brokerage firm Credit Suisse said that while the deferment of spectrum auction payments was in line with expectations, the absence of a decision on reducing licence fees was “clearly negative.”
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Shares of Vodafone Idea plunged over 6% to Rs 6.64 at the close on the BSE Thursday, while those of Bharti Airtel fell 2.5% to Rs 426.25.

While the Union Cabinet approved the two-year moratorium on payments to be made for spectrum bought in auctions, the government is unlikely to intervene in the matter of the Supreme Court-mandated statutory AGR-based payments, people aware of the matter said.

“On AGR, we believe the telcos are likely to approach Supreme Court for relief,” analysts at Citi said.

Following the Supreme Court order on October 24 that widened the definition of AGR to include non-core revenue, Vodafone Idea needs to pay over Rs 53,000 crore in additional licence fees, spectrum usage charges, interest and penalties, while Airtel’s dues are about Rs 35,600 crore.
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Goldman Sachs estimated that Bharti Airtel and Vodafone Idea can potentially save about Rs 14,200 crore and Rs 23,400 crore, respectively, through the moratorium, amounting to 41% and 52% of their respective AGR-related liabilities.

“We expect additional measures from the government on AGR dues and others. We expect the government to put a moratorium on AGR dues for the next two years, aiding cash flows. A reduction in licence fee (helps Bharti/VodaIdea’s EBITDA by 5%/28%) and an extension of IUC (interconnection usage charges) are also likely,” research firm Jefferies said.
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However, government officials said the moratorium on spectrum payments is all that is being offered to the telcos for now.
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