The credit rating agency Fitch has said that a two-year moratorium for telecom companies to pay their spectrum dues and tariff hikes in mobile phone call and data charges from December 2019 may not be sufficient for Bharti Airtel and Vodafone-Idea to offset the impact of the Supreme Court ruling on payment of past statutory dues. In October 2019, the Supreme Court had ruled that non-telecom revenues will be included while calculating statutory dues towards the government. Besides, Fitch has assigned a negative outlook to the telecom sector for 2020 primarily due to heightened financial risk associated with the large unpaid statutory dues.
The US-based agency has said that the incumbents are likely to file a review petition in the Supreme Court and have also approached the government to seek other forms of relief, including waiver or grant of deferred payment terms for the dues and reduction of licence fees and spectrum usage charges. Despite the tariff hike, Fitch still believes it will take negative rating action on Bharti if it pays the adjusted gross revenue (AGR) dues within three months and funds the payments entirely by debt. It added that the divergence between Bharti’s and Vodafone Idea’s financial performance continued in 2QFY20, while Reliance Jio, a subsidiary of Reliance Industries (RIL), continued to report solid financial performance with 2QFY20 revenue rising by 6 percent qoq and EBITDA up by 10 percent.
Fitch expects Vodafone Idea to continue to struggle to improve its EBITDA amid fierce competition, limited financial flexibility to invest and a shrinking subscriber base. It stated that Vodafone Idea disclosed that it had to reclassify some long-term debt to current debt as it failed to meet certain financial covenants in bank loan documents, and it is in discussion with the lenders to request waivers. However, it said Reliance Jio is not affected by the ruling and is likely to continue to gain revenue market share, which will support RIL’s deleveraging plans.