Tariff hike and government relief not enough for Airtel and Vodafone says rating agency

• Global ratings agency Fitch says that there’s going to be no relief for trouble laden Vodafone Idea and Airtel.
• Airtel, Vodafone and Jio have all hiked their tariffs, which will come into effect from December 1.
• The government has given a two-year relief to Airtel and Vodafone Idea to pay up their AGR dues.

After a lot of bad news, the Indian telecom sector received good news week – like two year moratorium on spectrum payments of ₹92,000 crore; and the top three telecom companies also raised tariffs.

While stock markets have been cheering the move, rating agency Fitch is not as easily impressed. “These are unlikely to be sufficient to offset the impact of a recent Supreme Court judgement for incumbents Bharti Airtel and Vodafone Idea,” said the report.

The agency gave a negative outlook to the sector due to heightened financial risk associated with the large unpaid AGR-related dues. In October, the Supreme Court held that telecom department’s definition of aggregate gross revenues (AGR) is right and they should pay up for non-telecom revenues as well.

Fitch placed a negative rating action on Bharti Airtel, even if the company pays its AGR dues worth ₹41,000 crores.

“This is because Bharti's FFO adjusted net leverage will then deteriorate to a level significantly higher than the threshold in FY20, above which we would take negative rating action. We will resolve the rating watch Negative on Bharti's ratings once we have greater clarity on the timing and financial impact of the regulatory dues and any remedial measures,” said the report.

The numerous fees that Airtel has to pay has also led to speculation that the telecom giant might have to sell stake in subsidiaries.

“Bharti may be able to partly fund the unpaid dues through a planned stake sale of $2.5 billion-3.5 billion in the combined Bharti Infratel (Infratel) and Indus Tower entity, which is awaiting regulatory approval of the merger,” an earlier Fitch report had said.

Meanwhile, Airtel and Vodafone Idea are in the process of filing review petition in the Supreme Court on Friday against the AGR judgment of the top court last month, said an IANS report.

Recently, Vodafone Idea posted a massive loss of ₹50,921 crore for the second quarter. Meanwhile, the telecom giant also continues to lose subscribers. Its subscriber base went down from 375 million to 372.4 million in September. Airtel too lost users in September, going from 328 million subscribers to 325.5 million.