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Fitch: Supreme Court ruling negative for incumbent telcos
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SME Times News Bureau | 21 Jan, 2020
Vodafone Idea Limited and Bharti
Airtel Limited will be affected by the Supreme Court's rejection on
January 17 of a review petition against its earlier ruling in a
long-running telecom sector tax case, Fitch Ratings said on Tuesday.
The
court's ruling in this case could also have significant repercussions
for India's banking sector, as well as the country's broader economic
outlook, the rating agency said.
The Supreme Court's rejection
on January 17 of a review petition against its earlier ruling is credit
negative for the industry, said Fitch Ratings.
The Supreme
Court's decision to reject the review petition is likely to lead the
Department of Telecommunications (DOT) to demand that telcos pay unpaid
dues on licence fees and spectrum usage charges by January 23, 2020, it
said.
Fitch placed Bharti's ratings on Rating Watch Negative
(RWN) outlook on October 30, 2019, following the Supreme Court's verdict
against the country's telcos on the definition of adjusted gross
revenue (AGR), based on which the incumbent operators must pay hefty
dues to the government.
"We will resolve the Rating Watch
Negative on Bharti's rating, based on our assessment of the positive
impact of EBITDA growth from announced tariff hikes by all telcos in
December 2019 and taking into consideration likely subscriber addition
should Vodafone Idea gradually exit the industry," it observed.
We
forecast Bharti's FYE20 FFO-adjusted net leverage to be 2.3x-2.6x,
close to the 2.5x level above which we would take negative rating
action. Nonetheless, the company's management is committed to
maintaining an investment-grade rating and raised about $7.6 billion in
equity in the last 12 months. It also raised $750 million of
subordinated debt via perpetual bonds, on which Fitch assigns a 50 per
cent equity credit," it said.
Vodafone Idea could face severe
liquidity stress as a result of the tax case, as its cash balance of
$2.2 billion as of September 2019 would be insufficient to pay its $6.3
billion of unpaid dues. The firm's efforts to generate cash have
recently been hampered by loss of subscribers and revenue to Reliance
Jio, part of Reliance Industries Ltd (RIL, BBB-/Stable), Fitch noted.
Vodafone
Idea and Bharti have jointly filed a moderation application with the
Supreme Court seeking more time to pay the funds due. They may also
approach the government to obtain relief.
Vodafone Idea could
also raise cash through sales of assets, such as its 11 per cent stake
in Indus-Infratel or its 158,000 km of fibre networks. However, the
company's chairman has said that Vodafone Idea will close in the event
it is unable to obtain relief from the Supreme Court or the government,
the agency said.
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Customs Exchange Rates |
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