Vodafone Idea’s long-term issuer ratings downgraded on NCDs

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Published: November 2, 2019 3:07 AM

The SC ruling on October 24 in favour of the telecom department’s definition of AGR is expected to adversely impact Vodafone Idea.

vodafone, telcom sectorThe event poses a significant risk to Vodafone India’s credit profile, the ratings agency said.

Ratings agency India Ratings & Research on Friday downgraded telecom major Vodafone Idea’s long-term issuer ratings on non-convertible debentures (NCD) worth Rs 3,500 crore to “IND BBB/RWN” from “IND A+/Negative.” The NCDs were issued on June 12, 2015 and are due to mature on July 10, 2020.

The ratings agency attributed the downgrade to three key factors: the recent ruling by the Supreme Court on the adjusted gross revenue matter, delay in monetisation of the company’s fibre assets and its stake in Indus Towers, and risk of acceleration of bank loans.

The SC ruling on October 24 in favour of the telecom department’s definition of AGR is expected to adversely impact Vodafone Idea, as the telco is expected to make payments to the government aggregating to over Rs 28,000 crore. The event poses a significant risk to Vodafone India’s credit profile, the ratings agency said.

India Ratings said there is lack of visibility over the timeline of monetisation of the telco’s fibre assets, which was earlier expected to be completed by December and bring in around Rs 11,000 crore. The telco was also expected to monetise 11.15% of its stake in Indus Towers, which would fetch around Rs Rs 5,100 crore.

During the last quarter of the previous financial year, the telco had also classified Rs 10,200 crore from non-current borrowings to current maturity of long-term borrowing due to its inability to meet covenants on the financial agreements of some banks. Said banks have yet to confirm waiver of these covenants, the ratings agency observed .

“Even if the liabilities towards the Supreme Court ruling and acceleration of bank loan payment do not crystallise, the asset monetisation remains critical for Vodafone India to maintain its liquidity buffer” during the first half of financial year 2021, the ratings agency said. The telecom major’s liquidity profile is stretched as free cash flows are expected to remain negative over FY20-FY22 and the telco would have to rely on refinancing or capital infusion to meet its debt obligations and capex requirement, the agency said.

On Wednesday, Care Ratings had downgraded its rating on various long-term bank facilities and non-convertible debentures of Vodafone Idea.

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