Credit ratings agencies, CRISIL and CARE Ratings have downgraded Vodafone Idea post the Supreme Court judgement.
Vodafone Idea announced that credit rating agency, CRISIL, has downgraded its rating on company's non-convertible debentures of Rs 3,500 crore. CRISIL downgraded ratings from BBB+ to BBB-. The downgrade is on account of substantial impact on the financial risk profile on account of the potential payout against the adjusted gross revenue (AGR) related disputed liability and continued weak operating performance.
CARE Ratings also downgraded its rating on the company's long term bank facilities and non-convertible debentures. The rating was revised to CARE BBB- from CARE A- with a negative implications outlook. The downgrade is on account of significant erosion in the overall risk profile of the company while taking into cognizance of the financial impact of unfavorable ruling of Supreme Court; significant losses in Q2FY20 due to provision related to AGR dues, recognition of deferred assets and provision for additional depreciation/ impairment of assets and consequently resulting in the significant deterioration in the tangible net worth and overall debt protection metrics.
Media reports suggest that Bharti Airtel, Vodafone Idea and Tata Teleservices on Friday, 22 November 2019, individually filed review petitions in Supreme Court (SC) on the recent AGR verdict seeking waivers on penalties and interest, and interest on penalties.
SC on 24 October 2019 ruled in favor of the government on the AGR issue, with grave revenue implications to the tune of over Rs 92,000 crore for the ailing telecom sector.
AGR is the basis on which Department of Telecommunications (DoT) calculates levies payable by operators. Telecom operators are liable to pay around 3-5% and 8% of the AGR as spectrum usage charges and licence fees, respectively, to DoT. Telcos argued that AGR should comprise revenue from telecom services, but DoT insisting that AGR should include all revenue earned by an operator, including that from non-core telecom operations.
Consequent to the SC judgement, Vodafone Idea accounted for the estimated liability of Rs 27,610 crore related to license fee and Rs 16,540 crore related to spectrum usage charges up to 30 September 2019, including the interest, penalty and interest thereon of Rs 33,010 crore.
The Union Cabinet on 20 November 2019, approved the proposal for mitigating financial stress being faced by the telecom services sector. DoT will give an option to the Telecom Service Providers (TSPs) to defer payment of the spectrum auction instalments due for 2020-21 & 2021-22, either for one or both years. These deferred amounts bill be spread equally in the remaining instalments to be paid by TSPs. Interest as stipulated while auctioning of the concerned spectrum will however be charged so that net present value (NPV) is protected.
Deferment of spectrum auction installments will ease the cash outflow of the stressed TSPs and facilitate payment of statutory liabilities and interest on bank loans. Improved financial health of TSPs will facilitate maintenance of quality of services to consumer.
The decision for deferring spectrum payment installments for two years will be implemented within a fortnight.
Bharti Airtel, Vodafone Idea and Reliance Jio have proposed to increase tariffs from December 2019.
Shares of Vodafone Idea closed 1.2% down at Rs 6.56 on Friday. The stock soared 78.26% in last seven days as compared to a 7.85% rise in BSE Telecom index.
Powered by Capital Market - Live News
Disclaimer: No Business Standard Journalist was involved in creation of this content
