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SC order means fines on Vodafone Idea, Airtel can fund BSNL, MTNL revival plan

  • This is a huge blow to private telcos who have been running losses for the past many quarters
  • Vodafone Idea is likely to find its cash balance of 21000 crore at the end of June wiped out as a result of the SC order

The Supreme Court has ruled that private telcos such as Vodafone Idea Ltd and Bharti Airtel Ltd need to shell out hefty payouts to the government, on account of license fee dues and penalties. The disputed license fee in question was about Rs23000 crore. But the amount the government was claiming, and is now likely to get as a result of the Supreme Court order, is over Rs90,000 crore, including penalties and interest.

This is a huge blow to the private telcos who have been running losses for the past many quarters, and show no signs of making money in the near future. Vodafone Idea Ltd is likely to find its entire cash balance of about Rs21000 crore at the end of June wiped out as a result of the SC order. Its shares crashed by 26.6% on the National Stock Exchange on Thursday, while those of its peer, Bharti Airtel rose by about 3%, as investors started pricing in the possibility of a two player market.

Incidentally, the government has announced a hefty revival package for ailing public sector telecom firms, BSNL Ltd and MTNL Ltd. The fines can easily fund this package. “These hefty payouts could fund the announced revival package (for BSNL and MTNL) and another two, perhaps, should the need arise," analysts at Kotak Institutional Equities said in a note to clients on 24 October.

The revival plan involves a merger of the two firms, a fund infusion of Rs20,000 crore by the government, a further Rs30,000 crore burden for a voluntary retirement scheme for employees, besides other measures such as asset monetisation and allotment of 4G spectrum.

As this column had pointed out, Vodafone is already hanging by a thread; with its cash balance expected to run out in a few quarters from now.

Now, questions and concerns about bankruptcy will start appearing sooner than later. “A 3-player market with the post-MTNL merger BSNL being the 3rd one... is a realistic scenario if the Supreme Court judgment in the AGR case goes against the telecom operators," analysts at Kotak said in the note ahead of the SC judgment. Worries about debt defaults by telcos have led to a fall in shares of banks such as State Bank of India, which was down over 4% at the time of writing.