Motilal Oswal: Telcos may default on spectrum auction dues over AGR payment

The new stress that could now emerge for government and banks despite winning the AGR battle against the telcos in the Supreme Court is the strong possibility of telecom companies defaulting on last spectrum auction dues payment to the tune of Rs 90,000 crore, analyst firm Motilal Oswal has said.

"Ironically, the government, despite winning the suit, could see the biggest impact through deferred spectrum debt default of Rs 900 billion", broking firm Motilal Oswal said in a report.

Earlier this month, Department of telecom (DoT) amended license to defer payments of the spectrum auction instalments due for 2020-21 and 2021-22, operationalising the committee of secretaries` decision to allow a two-year moratorium as decided by the Committee of Secretaries headed by Cabinet Secretary Rajeev Gauba.

The Supreme Court on Monday rejected Vodafone Idea`s appeal to direct the telecom department not to invoke its bank guarantees for recovering adjusted gross revenue (AGR) - related dues, leaving the beleaguered telco on the brink of a possible collapse.

This now leaves DoT to raise demand notice. Total AGR liability by telcos stands at Rs 1,470 billion, of which Bharti/VIL need to pay Rs 340 billion and Rs 440 billion, it said.

"This could have far-reaching serious ramifications on the telecom and banking sectors with ripple effects on the overall economy, as VIL faces a risk of shutdown with largescale debt default (Rs 1 trillion), job losses and subscriber churn/annoyance.

Ironically, the government, despite winning the suit, could see the biggest impact through deferred spectrum debt default of Rs 900 billion, Motilal Oswal report noted.

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Bharti though appears well placed with its recent fund raise. A duopoly market will likely benefit it (along with RJio) with incremental EBITDA potential of Rs 100 billion in FY22 even after building in network cost increase with blue-sky EBITDA of Rs 550 billion, it added.