Downgrade factors in the impact on financial risk profile of the potential payout against the AGR-related liability and weak operating performance
Ratings agency Crisil on Friday downgraded non-convertible debentures (NCDs) worth Rs 3,500 crore of Vodafone Idea to ‘CRISIL BBB-’ from ‘CRISIL BBB+’, and continued to keep a “negative” ratings watch.
“The downgrade factors in the substantial impact on financial risk profile of the potential payout against the adjusted gross revenue (AGR)-related disputed liability, and continued weak operating performance,” Crisil said.
Earlier this week, the Union Cabinet granted a two-year moratorium on deferred spectrum payments to telecom companies.
On October 24, the country’s apex court ruled in favour of the Indian government on the definition of AGR, stating that non-telecom revenues should be included for the payment of spectrum usage charges and license fee.
Vodafone India has made a total provision of Rs 44,150 crore (Rs 27,610 crore towards licence fee and Rs 16,540 crore towards spectrum usage charges) till the quarter ended September 30, 2019, for the disputed liability towards AGR.
On Friday, telecom companies that are worst affected by the ruling – Bharti Airtel, Vodafone Idea and Tata Teleservices – filed review petitions in the Supreme Court on the verdict, seeking waivers on penalties and interest on penalties.
“The existing liquidity (Rs 15,390 crore) will be insufficient if there is a payout of licence fee liability of `27,610 crore. Given the weak operating performance, the company’s ability to raise fresh debt is low. Vodafone India’s solvency is dependent on significant and timely relief package from the government on AGR-related dues and support from sponsors,” the ratings agency said.
On November 18, 2019, Vodafone Idea announced a tariff hike starting December 1. “The quantum of hike remains a key monitorable,” the ratings agency said. “Despite tariff hike, debt protection metrics are expected to remain weak on account of potential payout against the AGR-related dispute, and delay in planned monetisation of assets. As per our estimates, net debt to Ebitda and interest coverage ratios could remain over 20 times and below 1 time, respectively, for fiscal 2020,” Crisil said.
Vodafone Idea’s operating income stood at Rs 1,050 crore in the September quarter. The company lost over 11 crore subscribers over the 12 months ended September 2019. “Continued subscriber loss has negated the benefits of higher average revenue per user (ARPU) and synergy benefits,” Crisil said.