AGR Dues (impacting telecom companies) what we know and it’s impact?

AGR Dues (impacting telecom companies) what we know and it’s impact? 

History- Supreme Court had levied a hefty penalty on telcos mainly Bharti and Vodafone around (50-60,000 crore each) against unpaid AGR dues on account of change in calculation methodology.

While Bharti could pay chunk of its dues led by capital raising, Vodafone has not been able to pay much of the AGR dues, which has raised uncertainty regarding Vodafone Idea survival. 

DOT (department of telecom) has proposed to let the telcos pay the AGR dues via instalments over the next 20 years, which will ensure their survival, however this has to be approved by the Supreme Court.

How will stocks be impacted?

Vodafone Idea- Most amount of volatility will be witnessed on this counter as in all probability it’s fate hangs in the balance on this court ruling. A positive ruling by the SC can really change its fortune and cause a substantial uptick in its stock price, while a negative ruling can be equally detrimental to its fortunes. A positive ruling can even lead to doubling of the stock price/while a negative ruling can result in 40-50% decline  (given the very low market capitalisation relative to the size of the company and the AGR dues  penalty)

Bharti Airtel - Bharti has already paid around 30k crore in AGR dues, hence any positive news will be positive from a balance sheet perspective, as some refund or other sort of waiver it may get. However at the moment markets are anticipating a duopoly in the telecom space, and are expecting market share gains for Bharti led by the death of Vodafone hence some amount of market share gain optimism may temper down.  

A negative verdict won’t be too negative for Bharti as the optimism around market share gains will get stronger, infact on a negative verdict Bharti may rally more.

Reliance Jio- Given they begun operations only on 2016/2017, AGR dues are not applicable for reliance. A positive verdict may be slightly negative as it would lead to survival of Vodafone and would not lead to significant market share gains. A negative verdict will lead to lot of optimism around market share gains and can help Reliance gain in the trading  session.

Banks- Indusind bank and IDFC first bank will also be buzzing in trade. IndusInd bank has around 4K crore exposure to Vodafone (2% of loan book) and IDFC first bank has 3k crore (3% of loan book) exposure to Vodafone, a positive verdict can result in a relief rally in both the stocks, given the concerns markets has regarding this exposure.

The country’s apex court - Supreme Court (SC) observes following:

1. “Give us details of timeframe on payment of AGR dues.”
2. “What is guarantee that telcos will pay as per timeframe ?”
3. “Telcos must provide some security to satisfy the court.”
4. “What is the security that telcos are ready to furnish ?”
5. “Are telcos willing to furnish personal guarantees by directors ?”
6. “Who authorizes demands to be raised against PSUs ?”
7. “Our judgement was silent on PSUs.”
8. “Demand against PSUs must be withdrawn.”

Supreme Court Order 

Several.issues which are to be considered such as reasonable time for staggered payout.  Also need to consider some security to ensure that telcos pay the AGR dues. Telcos are directed to file reply on roadmap of payment, time to be allowed.

Sources: Various publications

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