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AGR crisis: Crisil, India Ratings downgrade Vodafone Idea

FE Bureau

Two rating agencies - Crisil and India Ratings & Research - have downgraded non-convertible debentures of Vodafone Idea worth Rs 3,500 crore. The downgrade comes after the Supreme Court refused to grant any relief to the telecom operator, which may find it challenging to make the payment against the adjusted gross revenue (AGR) related liability. Total debt of Vodafone Idea stood at Rs 99,660 crore as on September 2019, shows the data from Bloomberg.

While Crisil has downgraded non-convertible debentures of Vodafone Idea to 'Crisil BB' from 'Crisil BBB-', India Ratings and Research downgraded long-term issuer rating of the company to 'IND BBB-' from 'IND BBB'.

Crisil was of the view that the actual payment towards the AGR-related liability could be lower than the `44,150 crore that has been provided for by the company. "Crisil believes there could be some relief from the department of telecommunications (DoT) in the form of deferment of timelines for payment of these liabilities. Crisil further expects the sponsors to provide financial support in case a significant relief, in terms of amount and timelines, is provided," it said in its rating rationale.

Post the downgrade, Franklin Templeton MF announced that it had created a segregation of portfolio in schemes that were holding debt papers of Vodafone Idea. These schemes include: Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund.

Earlier the fund house had marked down its entire investment to zero in debt schemes holding the papers of Vodafone Idea. The data from Value Research shows that exposure of mutual funds to the debt papers issued by Vodafone Idea stood at Rs 3,389.77 crore till December 2019. Fund houses such as Nippon India MF, Aditya Birla Sun Life MF and UTI MF also have a investments in Vodafone Idea.

Side pocketing or segregation of portfolio separates stressed assets from other investment and cash holdings of a particular scheme. Doing this ensures that while investor money in the debt scheme linked to stressed assets gets locked until the fund recovers money from the stressed company, investors are free to redeem their money from other investments.

Fund manager with a scheme that has exposure to Vodafone Idea’s debt instruments said that some decision would be taken only after there was some clarity from the apex court. The Supreme Court has agreed to hear an application filed by telcos requesting modification in the court’s original order of October 24, 2019, to decide upon the payment schedule for AGR liabilities and any other relief measures with DoT. "As of now, Vodafone Idea has not defaulted on any interest payment yet and we hope that if not SC, government will give some concession to telecom companies.

Things will get clearer in the next 15-20 days once the SC gives its judgment in the matter," said a fund manager on condition of anonymity. Telecom companies are now required to pay Rs 1.47 lakh crore in AGR dues.

According to the Crisil ratings, Vodafone Idea had made a total provision of Rs 44,150 crore, which includes Rs 27,610 crore towards licence fee and Rs 16,540 crore towards spectrum usage charges, till the quarter ended September 30, 2019, for the disputed liability towards AGR. The existing liquidity (about Rs 15,390 crore as on September 30, 2019) will be insufficient if there is a payout of licence fee liability of Rs 27,610 crore.