American Tower Company (ATC), which recently settled dues worth Rs 1,600 crore from Vodafone Idea through optionally convertible debentures (OCDs), has said it recorded around $16 million unrealised loss in January-March because of that settlement.
The reason for the company to clock such unrealised losses can be attributed to the fall in Vodafone Idea’s share price. Since the OCDs will be convertible into equity shares on maturity, ATC will accordingly adjust the value of OCDs from time to time based on the share price of Vodafone Idea, according to analysts.
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“During the three months ended March 31, 2023, the company recognised unrealised losses of $15.7 million for the VIL OCDs held as of March 31, 2023,” ATC said in a filing to the US Securities and Exchange Commission.
“The significant input to the fair value of the VIL OCDs is the VIL equity share price underlying the instruments, less a liquidity discount. Unrealised holding gains and losses for the VIL OCDs are recorded in other income (expense) in the consolidated statements of operations in the current period,” the company added.
Liquidity discount is a lower valuation applied to illiquid shares. Owing to lack of liquidity, volatility in the share prices get increased, therefore investors usually discount such investments at higher rates.
Vodafone Idea is ATC’s largest customer in India and constitutes 3.2% of its total annual revenues. The telecom operator owes over Rs 3,000 crore to ATC, according to industry estimates. In February, Vodafone Idea had allotted equity convertible debt bonds worth Rs 1,600 crore to ATC Telecom Infrastructure, the Indian arm of ATC. The amount of Rs 1,600 crore, if unpaid by Vodafone Idea in 18 months, would also give an option to ATC to convert the dues into equity.
The telecom operator share price on BSE was at Rs 6.83 on February 28 when the OCDs were issued. The share price fell nearly 15% to Rs 5.82 on March 31.
According to ATC, Vodafone Idea OCDs will mature in two tranches. OCDs worth Rs 800 crore will mature on August 27, 2023, and other Rs 800 crore will mature on August 27, 2024. The fair value of the VIL OCDs at issuance was approximately $116.5 million (Rs 952.7 crore). Vodafone Idea will also have to pay an interest of 11.2% per annum on the OCDs issued. The interest is payable semi-annually beginning on August 27, 2023, ATC said.
In 2022, ATC revenues from Asia-pacific property segment fell 10% to $1.07 billion (around Rs 8,778 crore) due to revenue reserves of $52.5 million (Rs 431 crore) related to the shortfall by Vodafone Idea and a write-off of the latter’s balances to the tune of $13.1 million (Rs 108 crore).
In the three months ended March, ATC revenues from the Asia-pacific profit segment fell 16% year-on-year to $251.1 million owing to a shortfall in payment by Vodafone Idea.
“A decrease of $22.0 million in other revenue, primarily due to revenue reserves of $20.8 million related to the VIL Shortfall, as compared to the prior-year period, which included net recoveries of reserves, and a decrease of $13.1 million in pass-through revenue, primarily due to revenue reserves of $14.1 million related to the VIL Shortfall,” ATC said.
Pass-through revenue means operating revenue for ATC which is derived from costs. Simply put, telecom companies reimburse energy or fuel charges to tower companies.
As a result of the challenging business environment in India, ATC is also looking to sell-off stake in India operations to one or more private investors.