Airtel to pay interest on deferred liabilities to govt, not to issue equity

The company informed the DoT that it will not avail the option of conversion of interest on deferred spectrum and AGR dues into equity.

Bharti Airtel will pay interest on the deferred spectrum and adjusted gross revenue (AGR) liabilities, and will not issue equity to the government, the telecom major said on Friday.

The company has informed the Department of Telecommunications (DoT) that it will not avail the option of conversion of interest on these dues into equity, it said in a notification to the stock exchanges.

Airtel owes the government around Rs 1 trillion in spectrum and AGR dues as of now.

The government announced last year a slew of measures to protect the financial health of telecom companies. These included a four-year moratorium on the payment of dues and the option of paying the interest amount arising due to the said deferment by way of equity.

While Airtel and Vodafone Idea (Vi) opted for the four-year moratorium, Reliance Jio decided against it.

In a conference call after the second-quarter results in November, Vi Chief Financial Officer Akshaya Moondra said the company was evaluating whether to convert the interest on liabilities into equity. The company has time till January 12 to take a call on the matter.

The deferment of spectrum and AGR liabilities will help Airtel save Rs 35,000-40,000 crore. Vi is expected to save around Rs 60,000 crore in cash outgo over the next four years. The two companies hope to utilise the amount for network expansion, capacity improvement, and acquisition of 5G spectrum.

Rating agencies said Airtel’s decision against opting for interest conversion was along expected lines.

“Bharti Airtel has a meaningful cushion to absorb the interest cost during moratorium owing to its strong financial flexibility and cash flow generation,” said Prashant Tarwadi, director-corporates, India Ratings and Research. “The balance proceeds of the rights issue would ensure that the company is adequately funded for the future business initiatives (5G, enterprise business etc). Lastly, even if the conversion was opted, it would have led to a very negligible sub-2 per cent dilution in shareholding,” Tarwadi said.

Nitin Soni, senior director of Fitch Ratings, said, “The option to convert the deferred AGR and spectrum dues was targeted at Vodafone Idea, which is facing liquidity issues. Bharti Airtel’s leverage is comfortable following large equity issuance in the last two-three years. Hence, Airtel has not opted for equity conversion of deferred amount.”

Last month, Airtel prepaid its entire liability of Rs 15,519 crore from its 2014 acquisition of 128.4 MHz spectrum. The company had then said this would help in saving around Rs 3,400 crore in interest expenses.

While the dues related to the 2014 auction have been settled, Airtel has additional dues of Rs 74,500 crore for spectrum acquired through various auctions between 2012 and 2021. With regard to AGR dues, Airtel still owes the government about Rs 25,000 crore, even as it has already paid Rs 18,400 crore.