YES Bank planning to sell Rs 4,000-crore exposure to Vodafone Idea

Proceeds to be used to shore up liquidity

YES Bank is planning to sell its Rs 4,000-crore exposure to Vodafone Idea to asset reconstruction companies or to other institutions and use the proceeds to shore up its liquidity, said a source close to the development.

The Vodafone Idea loan is touted as a major risk by analysts for YES Bank after the telecom major was asked to pay Rs 54,000 crore of AGR (adjusted gross revenue) dues. Apart from Vodafone Idea, the stressed pool at the bank is largely made up of Essel Group, Reliance Anil Dhirubhai Ambani Group (ADAG), DHFL and commercial real estate book.

Apart from Vodafone Idea, other good corporate loans are also on the block at a discount, said the source. 

While some loans such as DHFL may not find any takers as they are already in the middle of investigations, Vodafone Idea is likely to get a buyer owing to the good standing of its promoters and future prospects. The telecom firm’s loans were downgraded in February this year to BB minus by CARE Ratings with negative implications.

“The fact that the company paid part of its AGR dues to the government shows that it is serious about its intentions. If the government provides moratorium on AGR payments, the loan will not become stressed,” said the source. Indian banks have a total exposure of Rs 1.2 trillion to the company.

The Reserve Bank of India (RBI) has already reminded banks of the need to make additional provisioning for ‘standard’ telecom loans and specific exposures in the sector with a high probability of being declared non-performing assets (NPAs) in their books down the line.

JP Morgan said the recovery process of the bank could get a boost if the lender were able to show recoveries from its stressed pool, especially ADAG where exposure is around $1.8-2 billion.

“We believe that while collateral for YES’ exposures in some of the groups (Essel/ADAG) is reasonably strong, liquidating these could be a problem in case of the insolvency of these entities,” the global bank said.

During the first nine months of the current financial year, Vodafone Idea reported total operating income of Rs 34,076 crore, and profit before interest, lease, depreciation and tax of Rs 11,405 crore and net loss of Rs 62,234 crore.

The losses widened on account of provision made for the Supreme Court’s ruling on payment of AGR dues to DoT, reversal of deferred tax assets and assets impairment. The increase in tariff is expected to increase the average revenue per user levels of the company from the current Rs 109 going forward.