Govt formula on AGR payment incrementally positive for VIL, but uncertainty on dues looms

The government's latest proposal seeking easier terms of statutory payment is "incrementally positive" for Vodafone Idea, but uncertainty on outstanding dues still prevails given the discrepancy between AGR math of companies and DoT, according to a brokerage report.

"We think the discrepancy between telcos' AGR estimate and DoT's estimate will take some time (9-12 months) to resolve with DoT looking to carry out the detailed audit of telcos' claim. We think this can potentially result in another legal battle if both parties maintain a recalcitrant attitude," Credit Suisse said in its latest note.

The Centre on Monday moved the Supreme Court seeking approval of its formula to allow telecom companies to pay their Adjusted Gross Revenue (AGR) dues in annual instalments for over 20 years to avoid impact on the economy.

Under the formula mooted by the government, telecom companies impacted by the October 24 verdict of the Supreme Court could be allowed to pay the DoT-assessed dues in annual instalments in over 20 years (or less if they so opt), "duly protecting the next present value of the said dues using a discount rate of eight per cent (based on one year marginal cost of lending rate of SBI which is currently 7.75 per cent)".

As per the formula, the interest on the unpaid amount, penalty, and interest on penalty in relation to the past dues as on the date of the judgement will not be levied beyond the date of the said judgement, and the net present value will be protected using the discount rate.

The proposal placed before the SC for consideration also states that telecom firms would continue to be liable for interest, penalty, and interest on penalty for unpaid dues of licence fee and spectrum usage charge which arises prospectively after the October 24, 2019 verdict.

In its report, Credit Suisse observed that the Department of Telecom (DoT) is seeking a 20 year tenure for AGR payment, and said, "while this is incrementally positive for Vodafone Idea as it can ease the immediate cash flow burden on the company, the uncertainty on outstanding dues still prevails."