1.1 trillion rupees AGR dues on telcos may open another wound for banks

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January 17, 2020 2:21 PM

Payment of the dues may erode the telecom operators’ cash flows, especially those of Vodafone Group Plc’s India venture. Under the October verdict, Vodafone Idea Ltd. has to pay $4 billion, while Bharti Airtel Ltd. has to give $3 billion by the end of next week.

Vodafone Idea Ltd. has to pay $4 billion, while Bharti Airtel Ltd. has to give $3 billion by the end of next week.

India’s top court’s rejection Thursday of an appeal by wireless carriers to review $13 billion they owe to the government raises risks for lenders to the companies, according to UBS Group AG. Payment of the dues may erode the telecom operators’ cash flows, especially those of Vodafone Group Plc’s India venture. Under the October verdict, Vodafone Idea Ltd. has to pay $4 billion, while Bharti Airtel Ltd. has to give $3 billion by the end of next week. The court also rejected requests to rehear petitions seeking relaxations on the deadline.

“IndusInd, YES, SBI appears to have relatively high exposure to Vodafone Idea,” analysts Vishal Goyal and Ishank Kumar wrote in a note. For the banking system, loans outstanding to the telecom sector were 1.1 trillion rupees or 1.3% of total loans in September, the note added.

BankExposure to Vodafone Idea %
Yes Bank Ltd.2.1
IndusInd Bank Ltd.2
State Bank of India Ltd.0.8
Punjab National Bank0.7
ICICI Bank Ltd.0.3
Source: UBS, company filings, media reports

IndusInd Bank, Yes Bank and Punjab National Bank are the least preferred stocks in the sector, according to the UBS note. The investment bank remains positive on Axis Bank Ltd., ICICI Bank Ltd. and HDFC Bank Ltd. Still, brokers including UBS are hopeful that the government will potentially provide some relief to the telecom carriers via staggered payments or waiver of interest and penalty.

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