Vodafone Idea’s network vendors could face challenges in recovering nearly Rs 4,000 crore ($550 million) in dues if the loss-making telco fails to survive the adjusted gross revenue (AGR) shock and is forced to shut, analysts and industry executives said.
They added that such a scenario could even drive some top gear makers to scale down or shut India operations as there wouldn’t be room for five global vendors if the sector consolidates down to a private duopoly comprising Bharti Airtel and Reliance Jio Infocomm.
Chinese vendors Huawei and ZTE may find it harder to get their money back as it’s not backed by letters of credit (LCs). Money owed to European vendors Nokia and Ericsson is backed by LCs, which means they have a stronger chance of recovering some, if VIL files for bankruptcy by moving the National Company Law Tribunal (NCLT), a person with knowledge of the matter told ET. VIL owes over $300 million to Huawei and ZTE and around $240 million collectively to Nokia and Ericsson.
An LC is a letter from a bank guaranteeing an equipment buyer’s payment to a vendor will be met. If the buyer is unable to make a payment, the bank will have to cover it.
Industry experts said any potential VIL shutdown could also jolt the India operations of tower companies such as US-based American Tower Corp. (ATC), which bought the struggling telco’s 20,000-odd standalone towers for over $1 billion a few years ago.
“If VIL files for bankruptcy, the standalone towers that ATC acquired from it for Rs 7,850 crore could become a collateral damage that it may have to write down going forward as the US tower company would have a tough time finding new tenants in a duopoly industry structure, given that Jio is building its own towers and Airtel primarily has tenancies with Bharti Infratel and Indus,” ex-Bharti Airtel CEO Sanjay Kapoor told ET.
Analysts said global network vendors will face bigger business continuity risks and be forced to review their India plans if the telecom market becomes a duopoly. Since Jio buys gear only from Samsung, future business and revenue streams of the remaining four vendors could be at a risk if solely dependent on Bharti Airtel.
Kapoor said the vendors space would see consolidation in India as there won’t be room for five global network gear suppliers in a twotelco market.
Rajiv Sharma, research head at SBICap Securities, backed this view, saying it may be “too complex for Airtel to work with four different vendors–Nokia, Ericsson, Huawei and ZTE–which could definitely reduce the business case for some suppliers, driving them to shrink their India Operations”.
Experts said VIL’s survival is unlikely unless there is fresh equity infusion from co-promoters as the chances of any relief by way of a staggered payment schedule of more than Rs 53,000 crore in AGR dues is remote, given the Supreme Court’s strong views on immediate recovery.
VIL said on Saturday that it is assessing how much it can pay in the next few days. It has said that its future is dependent on the apex court’s call on the modification plea that has been listed for March 17.
VIL, Huawei, ZTE, Nokia, Ericsson, ATC and Bharti Infratel didn’t reply to ET’s queries.
Source:The Economic Times, February 17,2020