Converting the debt of cash-strapped (Vi) to equity is one option to get out of the precarious position banks are in, lenders led by State Bank of India (SBI) have said, concerned over their exposure to the telecom operator.
At a meeting with the telecom department on Friday to discuss the stress in the sector, the lenders, however, said that since Vodafone Idea had not defaulted on its debts so far, they cannot take any action yet.
They instead pushed the Department of Telecommunications (DoT) to take steps to save the carrier, failing which the government would stand to lose a lot more than banks.
The banks, which also have a high exposure to bankrupt (RCom), urged DoT not to cancel its telecom licence, saying such a move would kill its entire resolution process under the Insolvency and Bankruptcy Code (IBC).
“DoT asked banks about their plans regarding Vodafone Idea…they said converting debt to equity is an option, but no major default has happened,” an official aware of the development said.
The Aditya Birla group holds 27.66% in Vodafone Idea, while co-parent Vodafone Group owns 44.39%. The rest is with the public.
The way forward is to restructure the funded exposure and convert the unsustainable debt into equity, another lender added.
“But we are hopeful that DoT and the government will come up with a solution because they have significantly higher dues,” the lender said. As of March end, Vodafone Idea owed ₹1.57 lakh crore to the government, including ₹96,270 crore towards spectrum payments and the rest towards its adjusted gross revenue (AGR) liability.
In comparison, banks have a total exposure of a little over ₹35,000 crore, of which the funded exposure is close to ₹13,800 crore, which is under risk of default, the lenders said.
The remaining is non-funded exposure in the form of bank guarantees to DoT, which is not under imminent threat unless the department draws down on them, which is unlikely. The telco also has another ₹7,500 crore in debt in the form of non-convertible debentures.
“The total bank funded exposure is quite low and may not create wider implications across the banking system, although individual banks may have higher NPLs (non-performing loans),” brokerage house Nomura said in a recent report.
The meeting was the first one since Kumar Mangalam Birla, chairman of Vi’s parent Aditya Birla Group (ABG), stepped down from the telco’s board last week.
Birla’s decision came less than two months after he wrote to the government offering to hand over the group’s stake in Vi to any public sector or domestic financial entity that could keep the company afloat. He had also said that without immediate government support, the telco would be driven to an irretrievable point of collapse.
The government hasn’t responded to Birla’s letter but is believed to be working on a relief package for the sector, which could include giving more time to pay spectrum dues, reducing levies such as licence fees and spectrum usage charge.
But experts say such a package, while helping in the medium to long term, won’t help Vi meet its immediate cash needs.
Lenders have been spooked by the critical financial situation of India’s only loss-making private telco, along with its inability to raise ₹25,000 crore despite trying for 10 months.
SBI, for instance, has an exposure of about ₹11,000 crore in the telco.
Vodafone Idea has said its operations are not generating adequate cash and had sought a year more – till FY23 – to pay the over ₹8,200 crore for spectrum that is falling due in April next year.
The company also has ₹7,000 crore of debt maturing in the current fiscal year, experts said.
The wireless carrier faces a potential $3.1 billion (₹23,500 crore) shortfall in cash flows in FY23. Its cash balance as of March end was only ₹350 crore.
Last Wednesday, SBI chairman Dinesh Khara said the bank will take all measures necessary to insulate its balance sheet from stress in telecom companies.
Khara also said that while Vi was not a stressed account on its books yet, the lender was watching the developments closely.
“We will have to wait and watch till the final verdict comes; nevertheless we have to ensure that we adopt all possible steps to insulate the balance sheet from any potential threat,” Khara said.
More to the Meet
Friday’s meeting had another item on the agenda as well.
The lenders also appealed to DoT to not cancel RCom’s telecom licence, a move that is certain to impact banks who have claimed ₹57,000 crore from the defunct telco.
DoT wants RCom to clear its dues of about ₹26,000 crore first.
The case is being fought in the National Company Law Tribunal (NCLT).
“DoT cannot do anything, and the decision will be taken by the NCLT,” said the official.
In June, the Delhi High Court directed DoT not to revoke the 20 telecom licences of the bankrupt telco for about 10 days. The matter will be heard this week in the NCLT.
As per the resolution plan blueprint, about ₹20,000-23,000 crore is expected from the sale of assets in RCom and its two units – Reliance Telecom and Reliance Infratel.
Of this, around ₹13,000 crore is slated to come from spectrum sales.
If RCom’s licence is revoked, the company will have to surrender its spectrum back to DoT. Without the spectrum sale, the resolution plan will get killed, lenders said.