2 min read.Updated: 25 Jun 2020, 10:55 PM ISTR. Sree Ram
Last week, the Supreme Court asked private telecom operators, Bharti Airtel Ltd and Vodafone Idea Ltd, the main tenants of Infratel and Indus Towers
Bharti Infratel Ltd has again deferred its decision on the proposed merger with Indus Towers Ltd and has extended the long stop gap date of the proposed merger to 31 August.
The company had received regulatory approvals for the deal earlier this year, but had extended the long stop date to April, then to June, and now to August. The extensions come alongside the Supreme Court’s ongoing deliberations on the adjusted gross revenue (AGR) dues.
Last week, the Supreme Court asked private telecom operators, Bharti Airtel Ltd and Vodafone Idea Ltd, the main tenants of Infratel and Indus Towers, to pay a “reasonable" upfront payment of AGR dues to consider a 20-year repayment period for the balance amount.
Bharti Airtel has paid 41% of the total AGR dues demanded by the government. However, Vodafone Idea’s payments amount to only 12% of the total AGR dues.
If Vodafone Idea has to make upfront payment similar to Airtel’s, as a percentage of total AGR dues, it will have to pay ₹16,990 crore more, a near impossibility considering its dire financial situation.
The company is seen to have the ability to pay smaller amounts, perhaps by monetizing its assets. One such asset monetization option is to sell its 11.15% stake in Indus Towers for cash, after the merger with Bharti Infratel.
At the time of the merger announcement in April 2018, this stake was projected to fetch Vodafone Idea ₹6,500 crore. Based on Thursday’s market price and original share swap ratio, Vodafone Idea’s stake in Indus Towers can still fetch ₹4,700 crore. The deferment of the merger with Infratel now makes it difficult for Vodafone Idea to raise funds immediately.
As such, the prolonged delay in merger with Indus Towers comes as a damper for investors. Operating earnings of Indus Towers were impacted soon after the Vodafone-Idea merger and the tenancy exits thereafter.
The Supreme Court’s decision on the 20-year AGR repayment schedule is crucial for the survival of Vodafone Idea, and it’s likely that Infratel is seeking this clarity before completing the merger with Indus.
“If Infratel itself is not sure about Vodafone Idea’s survival, how can investors muster strength to buy the stock?" asked an analyst, requesting anonymity.
The uncertainty does not bode well for Bharti Infratel also. the company holds a 42% stake in Indus Towers and a weak financial condition of a large customer (Vodafone Idea) crimps business prospects.
“Viability of Bharti Infratel’s operating model depends on the number of players in the telecom industry. Duopoly in a market, where one player (Reliance Jio) has its own infrastructure could make Infratel’s working model unviable," said an analyst from another broking firm, also requesting anonymity.
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