Banks may go for pre-emptive provisioning in the next couple of quarters to insulate their balance sheet from the possible impact of troubles at the loss-making and debt-laden Vodafone Idea Ltd (VIL).
According to VIL’s quarterly report, gross debt (excluding lease liabilities) as of March 31, 2021 was ₹1,80,310 crore, comprising deferred spectrum payment obligations of ₹96,270 crore and AGR liability of ₹60,960 crore. Debt from banks and financial institutions stood at ₹23,080 crore.
The company, in its notes to accounts for FY21 financial results, had said that there exists material uncertainty relating to the Group’s ability to continue as a going concern, which is dependent on its ability to “raise additional funds as required, successful negotiations with lenders on continued support, refinancing of debts, monetisation of certain assets…”
However, Vodafone Idea has not been able to raise any fresh funds despite scouting around for new investors over the last 12 months. Asset monetisation efforts have also not yielded any deals so far. Recently, Kumar Mangalam Birla exited the Board which, according to industry experts, could be a precursor to the company filing for bankruptcy.
No NCLT, say banks
But banks are not in favour of dragging the company into insolvency and bankruptcy proceedings because the chance of recovering the debt is low due to legal complications around selling telecom assets, especially spectrum. A senior public sector bank executive added that the issue cannot be solved by taking the company to the National Company Law Tribunal,, as it will destroy the value.
He pointed out that the government is the company’s biggest creditor because of the outstanding spectrum payment obligations and AGR dues.
“A telecom company owes its existence to the spectrum. Since spectrum cannot be passed on, prospective investors may not want to invest in the company.…If we initiate any kind of recovery action, it will only lead to value destruction,” said a banker.
The Vodafone Group and the Aditya Birla Group have 44.39 per cent stake and 27.66 per cent stake, respectively, in VIL.
“It is too big a risk to let the company go down. The only solution that seems feasible is to merge VIL with State-owned BSNL.
“But then are we okay with this when the government’s thrust is on privatisation of public sector undertakings?” a telecom sector analyst said.
As per the notes to accounts of the FY21 results, the VIL Group has incurred losses of ₹44,233 crore for the year ended March 31, 2021 and the networth is negative at ₹38,228 crore.