Dead-end for Vodafone-Idea? Here’s How It Will Impact Your Investment
Feb 17, 2020

Author: Divya Grover

Dead-end for Vodafone-Idea? Here's How It Will Impact Your Investment
photo created by freepik -

Telecom operators that had pinned hopes on some relief from Supreme Court (SC) for deferred adjusted gross revenue (AGR) payments were left hugely disappointed. The SC on February 14 rejected the modification plea filed by telcos, directing them to settle AGR dues by March 17 and reacted strongly to the companies for not having done so already despite the court's January 23, 2020 deadline.

The apex court even drew up contempt proceedings against a Department of Telecommunications (DoT) official for refusing to take any coercive action against telcos even as they failed to make payments.

Following this, the DoT asked all the firms to submit their dues by midnight of February 14, which was withdrawn later. Subsequently, Bharti Airtel paid Rs 9,500 Crore and stated that it will pay the rest before the next hearing on March 17.

Voda-Idea in an exchange filing said it will assess the amount that can be paid towards dues and proposed to pay the amount assessed in the next few days while reiterating continuing threat to its viability in the absence of judicial relief.

Today the SC rejected its proposal to pay Rs 2,500 crore by February 17 and Rs 1,000 crore by February 21. It also refused its plea that no coercive action will be taken against it.

Bharti Airtel and Vodafone-Idea are undertaking a self-assessment exercise for computation of AGR dues. As per media reports, the dues based on self-assessment could be about half of what the DoT has demanded.

Bharti Airtel's improved operating profit in Q3 along with the recent fund raising puts it in a better position to survive.

On the other hand, Voda-Idea reported a net loss of Rs 6,439 crore for December 2019 quarter, its sixth consecutive quarterly loss. Apart from the AGR dues of Rs 53,000 crore, the firm owes Rs 1.57 lakh crore in deferred spectrum payment to be settled by 2031 and one time spectrum charge of Rs 5712 crore (under litigation). This puts further stress on the company's finances.

As Vodafone's parent firm has refused to infuse capital and raising funds looks difficult within the limited time available, moving to NCLT for bankruptcy proceedings may be the only choice left, unless the government steps in to provide relief.

Absence of any relief would not just affect telecom operators. Non telecom companies with telecom licenses are required to pay AGR dues as well. GAIL, Oil India, PowerGrid, GNFC, etc. together owe the government Rs 2.65 lakh crore towards AGR. These companies have decided to move to Telecom Disputes Settlement and Appellate Tribunal against DoT's demand.

Additionally, banks such as SBI, IndusInd Bank, IDFC First Bank, ICICI Bank, PNB, among others with significant exposure (funded/non-funded) to telcos may face spike in bad loans. Stocks of these banks suffered significantly after SC rejected the modification plea. SBI Chairman Mr Rajnish Kumar in a recent media address had said that banks will have to pay the price if any of the telcos files for bankruptcy.

Among mutual funds, Franklin Templeton mutual fund (FTMF) had the highest exposure to its debt papers of VIL at the end of December 2019. Post SC's rejection of review plea filed by telcos, the fund house completely marked down its exposure and also restricted fresh inflows into the affected schemes. Further, it created side-pockets for the schemes affected after rating agencies downgraded debt papers of VIL to below investment grade.

[Read: Is Franklin Templeton MF's Write-down of Exposure to Voda-Idea Debt in Best Interest of Investors?]

Table: Mutual funds with highest exposure to VIL debt

AMC Dec-19 Jan-20
Market Value (Cr) Holding % (Assetwise) Holding % OverAll Market Value (Cr) Holding % (Assetwise) Holding % OverAll
Aditya Birla Sun Life AMC 514.40 0.34 0.21 253.66 0.17 0.10
Franklin Templeton Asset Management (India) 2074.08 3.33 1.67 0.00 0.00 0.00
Nippon Life India Asset Management 243.85 0.30 0.12 101.55 0.12 0.05
UTI Asset Management Company 557.45 0.82 0.36 237.63 0.33 0.15
Data as of January 31, 2020
(Source: ACE MF)

Aditya Birla SL AMC, Nippon AMC, and UTI AMC were the other fund houses with significant exposure to VIL debt. Though these funds have marked down their exposure to about half from its market value in December 2019, they have decided against segregating the portfolio for affected schemes. These funds may witness steeper mark downs in case of further rating downgrade.

[Read: Vodafone Idea Rating Downgrade What should investors of UTI, Aditya Birla SL, and Nippon MF do?]

Investors who have investment in debt mutual fund schemes with exposure to debt instruments of VIL (other than those belonging to FTMF) could possibly do away with the ones that could potentially prove perilous to their wealth, after conducting a systematic portfolio review.

Some mutual funds have been known to be habitual risk takers. Therefore, it is important for you, the investor, to realise the importance of carefully selecting mutual fund schemes. Invest in fund houses that follow stringent risk management systems and have robust investment processes in place.

Editor's Note: Want to make sure that your mutual fund portfolio takes you on the path of financial freedom? Here is your golden opportunity to get access to 'The Holy Trinity of Investments'.

Our special combo will give you access to 3 of our most successful & research oriented premium reports at a never before price.

These reports cover '5 Undiscovered Funds' that have the potential for solid results, '7 Strategic Funds' aimed towards wealth building and '5 Alpha Funds' that have the potential to multiply your gains exponentially.

Get access to this special '3-in-1 Combo' now!

Add Comments

Daily Wealth Letter

Fund of The Week

Knowledge Center

Money Simplified Guides (FREE)

Mutual Fund Fact Sheets

Tools & Calculators