Converting Debt To Equity Is One Option To Save Vodafone Idea, Lenders Tell DoT, Telecom News, ET Telecom

Mumbai: Converting cash-strapped Vodafone Idea (Vi) debt into stocks is an option to get out of the precarious position banks find themselves in, state Bank of India (SBI)-led lenders have said, concerned about their exposure to telecommunications. operator.

In a meeting with the telecommunications department on Friday to discuss the stress in the industry, however, lenders said that as Vodafone Idea has yet to default on its debts, they cannot yet take any action.

Instead, they pushed the Department of Telecommunications (DoT) to take action to save the operator, otherwise the government would risk losing much more than the banks.

The banks, which are also highly exposed to the bankruptcy of Reliance Communications (RCom), urged the DoT not to cancel its telecommunications license, saying such a move would kill its entire resolution process under the Code. insolvency and bankruptcy (IBC).

“The DoT asked the banks about their plans for Vodafone Idea… they said that while no major defaults have occurred, converting debt to equity is an option,” said an official familiar with the development. .

Aditya Birla Group owns 27.66% in Vodafone Idea, while co-parent Vodafone Group holds 44.39%. The rest is with the audience.

The way forward is to restructure the funded exposure and convert unsustainable debt into equity, another lender added.

“But we hope the DoT and the government find a solution because they have significantly higher contributions,” the lender said. At the end of March, Vodafone Idea owed Rs 1.57 lakh crore to the government, including Rs 96,270 crore for spectrum payments and the rest for its Adjusted Gross Income (AGR) liability.

Rs 35,000 crore total bank exposure

In comparison, banks have a total exposure of just over Rs 35,000 crore, of which the funded exposure is close to Rs 13,800 crore, which is under risk of default, the lenders said.

The rest is unfunded exposure in the form of bank guarantees to the DoT, which is not imminently threatened unless the department taps into them, which is unlikely. The telephone company also has an additional debt of Rs 7,500 crore in the form of non-convertible debentures.

“The total exposure funded by banks is quite low and may not have broader implications across the banking system, although individual banks may have higher NPLs (non-performing loans),” said brokerage firm Nomura in a recent report.

Birla stepped down on Wednesday and was replaced by Himanshu Kapania, currently a non-executive director and former managing director of the former Idea Cellular before its merger with Vodafone India.

Troubling situation

The meeting was the first since Kumar Mangalam Birla, chairman of Vi’s parent company, Aditya Birla Group (ABG), stepped down from the phone company’s board of directors last week.

Birla’s decision came less than two months after he wrote to the government offering to divest the group’s stake in Vi to any public sector or national financial entity that could keep the company afloat. He also said that without the immediate support of the government, the phone company would be pushed to an irreparable point of collapse.

The government did not respond to Birla’s letter, but it is believed to be working on a back-up plan for the sector, which could include additional time to pay spectrum fees, reduce levies such as spectrum license and fees.

But experts say such a package, while helping in the medium to long term, will not help Vi meet its immediate cash flow needs.

Lenders were frightened by the dire financial situation of India’s only loss-making private telecommunications company, as well as its inability to raise Rs 25,000 crore despite 10-month efforts.

SBI, for example, has an exposure of around Rs 11,000 crore in telecommunications.

Vodafone Idea said its operations were not generating enough cash and had sought another year – until FY23 – to pay more than Rs 8,200 crore for the spectrum which will mature in April next year.

The company also has Rs 7,000 crore in debt maturing in the current fiscal year, experts said.

The mobile operator faces a potential shortfall of $ 3.1 billion (Rs 23,500 crore) in cash flow in fiscal year 23. Its cash balance at the end of the month of March was only Rs 350 crore.

SBI Chairman Dinesh Khara said last Wednesday that the bank will take all necessary measures to protect its balance sheet from strains at telecom companies.

Khara also said that while Vi is not yet a stressed account on his books, the lender is keeping a close eye on developments.

“We will have to wait and watch until the final verdict is delivered; nevertheless we must make sure that we take all possible measures to isolate the toll from any potential threat,” Khara said.

Birla took over the non-executive chairmanship of Vodafone Idea in August 2018 after the closing of a $ 23 billion merger between Idea Cellular and Vodafone India, the telecommunications unit of UK group Vodafone.

More to meet

Friday’s meeting also had another item on the agenda.

The lenders also called on the DoT not to revoke RCom’s telecommunications license, a move that will certainly impact banks which have claimed Rs 57,000 crore from the defunct telecommunications company.

The DoT wants RCom to first clear its dues of around Rs 26,000 crore.

The case is brought before the National Company Law Tribunal (NCLT).

“There is nothing the DoT can do and the decision will be made by the NCLT,” the official said.

In June, the Delhi High Court ordered the DoT not to revoke the bankrupt telecommunications company’s 20 telecommunications licenses for around 10 days. The case will be heard this week at the NCLT.

According to the resolution plan, around 20,000 to 23,000 crore rupees are expected from the sale of the assets of RCom and its two units – Reliance Telecom and Reliance Infratel.

Of this amount, approximately Rs 13,000 crore is expected to come from spectrum sales.

If RCom’s license is revoked, the company will have to return its spectrum to the DoT. Without the sale of the spectrum, the resolution plan will be killed, the lenders said.

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