SC asks govt how it plans to get RCom/Aircel dues; the same applies to Voda-Idea where Rs 260,500-cr is at stake
The AGR-dues case in the Supreme Court (SC) just got a lot more interesting with SC looking at whether there was mala fide in telcos like RCom and Aircel being at the NCLT as this puts a question mark over their ability to repay their dues; RCom has AGR dues worth Rs 25,000 crore, and Aircel around Rs 12,389 crore.
While the department of telecommunications (DoT) has till Friday to tell SC what its plans are to recover the dues, the shocker was it telling SC that these firms could not sell their spectrum as part of the resolution process. This has been DoT’s stand all along but, in the Aircel case, the NCLT had ruled against DoT; even NCLAT struck down DoT’s appeal as it was filed too late. It is not clear how SC will treat DoT’s appeal against NCLAT; it was filed on July 24, though the NCLAT ruling was on March 4. The DoT stance is understandable since, if the telcos sell the spectrum, the government will be treated as an operational creditor and will get its dues only after financial creditors like banks are paid off from whatever can be recovered from the sale of firms like RCom and Aircel.
If DoT wins its appeal in SC, it will crimp the ability of banks—most of them, government-owned—to recover their dues from these telcos. The issue of who has rights over the spectrum is an old one since banks require this to safeguard their loans; but if the government allows banks the right to sell spectrum—RCom owes the banks over Rs 49,000 crore—this limits its ability to recover dues. In most spectrum sales, the telco pays 20-25% upfront, with the rest being paid, along with interest, over 20 years.
It is not possible to predict whether SC will allow Vodafone Idea and others 15-20 years to pay their dues, but if this is not done and Vodafone Idea shuts, like RCom and Aircel, it too will not be able to pay its dues. Vodafone Idea, which has invested over $51 bn so far, owes the government Rs 53,000 crore in AGR dues, Rs 5,700 crore in one-time-spectrum-charge (OTSC) dues, and another Rs 157,750 crore of deferred payments for the spectrum it has bought in the past. In addition, banks are owed around Rs 49,000 crore. On the face of things, should the firm shut, and the government take back the spectrum, it will lose only the AGR/OTSC dues—in that case, the banks will lose a lot—but it is not clear if the spectrum is worth as much since it was bought when the market was booming and when there were a lot more players than there are today.
Even if Vodafone Idea gets a 15-20 year window in which to pay its AGR dues, it is likely to remain a pale shadow of itself until its promoters are willing to pump in a lot more equity for capex, including the purchase of 5G spectrum in a year or so. Ideally, the government should scrap its licence fee (LF) and spectrum usage charges (SUC) as it is charging market-prices for spectrum; LF and SUC were charged when spectrum was mostly given out free. Indeed, high LF and SUC crippled the industry—even before RJio came in—and, as a result, the government’s revenues fell from Rs 70,241 crore in FY17 to Rs 39,345 crore in FY19 as there were no auctions in 2017, 2018, or 2019; FY20 revenues rose to Rs 58,989 crore, thanks to part-payment of AGR dues. Whether the government will see the light, of course, is not clear since it has done little while the writing has been on the wall for several years now.