On November 26, telecommunications company Bharti Airtel (Ba1 negative) made its latest filing with the Supreme Court seeking modification of the 90-day adjusted gross revenue (AGR) order for past-due licence fees and spectrum usage charges. If, as we expect, the amount Bharti is ultimately required to pay is large and needs debt funding, its debt leverage will increase, a credit negative.
Bharti's filings are in response to the SC judgment on October 24 upholding the Department of Telecommunications' (DoT) definition of adjusted gross revenue (AGR). AGR is the basis on which telecommunications firms' licence fees and spectrum usage charges are paid.
DoT defines AGR as all revenues generated by telecommunications companies. Telcos said AGR should include only revenue generated by telecommunications services.
Telecommunications companies typically pay the government around 8% of AGR as licence fees and 3-5% of AGR as spectrum usage charges.
The SC judgment indicates telecommunications companies such as Bharti and Vodafone Idea owe the government large amounts of past-due fees, including interest and penalties.
The court also directed telecommunications companies to clear such dues by the end of January 2020. Bharti has recorded an aggregate Rs 34,260-crore ($5 billion) provision related to these potential liabilities.
If Bharti and Vodafone are required to make their payments immediately and in full, it will likely have fundamental implications for the financial health and competitive dynamics of the Indian telecommunications industry. But the government has clearly said it can't provide any relief on AGR dues unless the SC directs it to.
Without a ruling from the Supreme Court that reduces the amount or extends payment terms, Bharti's debt level could rise by 25% if it is required to make the full payment of its aggregate provision (Rs 34,260 crore) and if Bharti funds it entirely with debt.