Vodafone Idea Faces Financial Crisis: AGR Plea Dismissal

New Delhi, Sep 19 (PTI) Relief on the AGR front is "crucial" for Vodafone Idea and in its absence, the telco could be staring at financial crisis in coming years once the annual spectrum and AGR payments of USD 4-5 billion per annum fall due, CLSA said on Thursday.

The brokerage's views come at a time when the Supreme Court has dismissed a batch of pleas filed by companies, including Vodafone Idea and Bharti Airtel, seeking correction of alleged computational errors in the Adjusted Gross Revenue (AGR).

"AGR relief is crucial for VIdea (VIL) and we await industry's next steps. In absence of AGR relief, VIdea could face financial crisis in 2HFY26/FY27CL, when annual spectrum and AGR payments to government of USD 4-5 billion per annum become due," CLSA said in a note on Thursday.

Macquarie's report titled "No AGR waivers; VI needs waivers and a white knight?" observed that Vodafone-Idea's net debt was USD 28 billion in 1QFY25, including AGR liability of USD 8.5 billion (of which about 20 per cent is principal and the rest represents interest and penalties).

According to Macquarie's estimates, Bharti Airtel had AGR dues of about USD 5.3 billion (versus company's initial self assessment at USD 1.6 billion), out of which it paid USD 2.2 billion.

Both Vodafone Idea and Bharti Airtel had opted for four-year moratorium on AGR and spectrum dues as part of the government's relief package in September 2021.

"VI FCF (free cash flow) math challenged - Tariff outlook has been improving, but without AGR concessions, it would take at least 25-30 years (15 per cent ARPU CAGR) for VI to organically pay back its obligations, and as such, further repayment timeline extensions are required. In our base case, we continue to see market-share erosion and meaningful equity dilution risk," Macquarie said.

ICRA Limited, Vice President and Sector Head - Corporate Ratings Ankit Jain estimates the total deferred AGR dues for the industry at about Rs 1 lakh crore, out of the total debt on the industry of Rs 6.4 lakh crore as on March 31, 2024 (including leases).

"These dues are currently on moratorium till September 2025. Any moderation in the total dues owing to correction of the said calculation errors as represented by the telcos would have resulted in a liquidity relief for the industry as a whole. However, in the absence of the same, the industry would be required to pay around Rs 25,000 crore per annum from FY2027 onwards towards the AGR liabilities," Jain pointed out.

In October last year, the apex court had taken note of submissions of some telecommunication companies seeking listing of their pleas on Adjusted Gross Revenue (AGR) dues issue.

The telcos had referred to alleged errors in the arithmetic calculation for arriving at the AGR-related dues by the Department of Telecommunications (DoT).

Back in July 2021, the Supreme Court dismissed a plea seeking correction of errors in the demand of AGR dues. The telecom companies had moved the top court claiming there were several errors in arriving at the AGR dues which totalled over Rs 1 lakh crore.

Vodafone-Idea's total liability was Rs 58,254 crore and Bharti Airtel's Rs 43,980 crore. Earlier, the top court had given the telecom companies 10 years to clear their outstanding dues to the government.

The top court held that the demand raised by the DoT with respect to AGR dues would be final. It also said that telecom companies shall not raise any dispute and there shall not be any re-assessment.

It had said telecom operators shall pay 10 per cent of the total dues as demanded by DoT by March 31, 2021, and the rest in yearly instalments commencing from April 1, 2021, to March 31, 2031.