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Lenders to cash-strapped Vodafone Idea Ltd believe the government must step in to rescue the telco and that a debt recast would be of little use.

This is because the bulk of banks’ exposure to Vodafone Idea is not in the form of term loans, which can be restructured, but non-fund-based guarantees, according to the bankers. The telco’s dues such as spectrum and regulatory fees also far outweigh its loans outstanding, they said on condition of anonymity.

Banks are unwilling to lend any more to the mobile phone operator as financial stress due to low telecom tariffs will render any such infusion meaningless, one of the two bankers said. They said it is in the government’s interest to ensure that a large player in a strategically important sector does not collapse because of lack of state support.

Vodafone has been repaying its loans, the banker cited above said, although its operational viability is a concern if low tariffs and AGR burden continue
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Vodafone has been repaying its loans, the banker cited above said, although its operational viability is a concern if low tariffs and AGR burden continue

“We are in constant conversation with the government, and the consortium of lenders believes that the company should get some reprieve," said the banker at a state-run lender.

The company reported that excluding lease liabilities, it owed the government and banks a total of 1.8 trillion as of 31 March 2021, including deferred spectrum payment obligations of 96,270 crore and adjusted gross revenue (AGR) liability of 60,960 crore. Besides, a Care Ratings report pointed out on 7 January that it also had term loans of 13,826 crore and guarantees and letters of credit of 23,737 crore.

Vodafone has been repaying its loans, the banker cited above said, although its operational viability is a concern if low tariffs and AGR burden continue. He said that the company is also in discussions with banks on the situation.

“There are just three telecom players in India, and the government should understand that if because of the collapse of one player, it turns into a duopoly, it will not take long before it turns into a monopoly. We also hope that the Supreme Court takes up the plea to re-evaluate AGR dues," the banker added.

An email sent to Vodafone Idea remained unanswered till press time. A State Bank of India (SBI) spokesperson declined to comment on “individual accounts and its treatment". Vodafone Idea’s top lenders include State Bank of India, IndusInd Bank and Yes Bank.

In September last year, Aditya Birla Group and UK’s Vodafone Group Plc, the telco’s controlling shareholders, announced plans to raise up to 25,000 crore for Vodafone Idea. However, the funds’ infusion into the company hasn’t happened.

A second banker from a private sector lender said he is hopeful that the government will take up the matter with utmost urgency.

“If they allow deferment of Vodafone Idea’s spectrum dues of over 8,000 crore for now, even then, the company will be able to survive," he said.

According to a CLSA note to clients, with 1.8 trillion in debt, of which 88% is for spectrum and AGR dues, the telecom company is headed for a crisis when annual payments become due.

It is not just the lenders who are concerned about tariffs. News agency Press Trust of India reported Bharti Airtel Ltd chairman Sunil Mittal as saying on Thursday that tariffs need to go up because of the tremendous stress in the telecom sector, and Airtel will not hesitate to raise prices but it will not do so unilaterally.

“To say that the telecom industry is in a bit of trouble is actually an understatement. It is under a tremendous amount of stress. I hope the government, the authorities and the telecom department all focus on this issue and ensure India’s digital dream remains intact through the provision of at least three operators," Mittal said.

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