Lenders fret on ways to recover dues from ghost telecom companies

Continued losses put a question mark on nearly Rs 7 trn worth of equity investment, including reinvested earnings of operators

As liabilities pile up, telecom has become a financial black hole for corporate India. At the end of March this year, mobile operators had together accumulated losses of Rs 1.4 trillion and outstanding debts of around Rs 4.9 trillion. 

Accumulated losses rise to Rs 1.85 trillion if one excludes Bharti Airtel, which is in the black thanks to high profitability in the past. The company reported accumulated profits of Rs 45,473 crore at the end of March this year on a consolidated basis, down from a high of around Rs 48,400 crore at the end of March 2017 (see chart).

This has translated into a huge capital loss for shareholders, including some of the India’s large business houses. For example, till the end of March this year, shareholders had sunk nearly Rs 7 trillion in the mobile telephony business. That includes the reinvested cash profits of historically profitable operators such as Bharti Airtel, Vodafone-Idea, and Reliance Communications.

Nearly a third of the equity investment or around Rs 2.2 trillion is stuck with now defunct operators with little or no hope of recovery for shareholders.

In all, cumulative investment in 13 private-sector mobile operators was around Rs 11.9 trillion, including equity investment by shareholders, debt and re-invested earnings of mobile operators.

In comparison, mobile operators have cumulatively distributed equity dividend worth Rs 11,800 crore since their inception. Nearly 90 per cent of this is accounted for by Bharti Airtel, which is paying dividend since FY09.

Nearly 85 per cent of the industry accumulated losses and a third of the outstanding debt is accounted for defunct operators such as Tata Teleservices, Reliance Communications, and Aircel. Together these defunct operators accumulated losses worth Rs 1.55 trillion and outstanding debts of Rs 1.6 trillion, according to their latest audited balance sheets.

Most defunct operators have now stopped reporting their balance sheet and financials. For example, Aircel and Sistema Shyam last reported their financials for 2015-16, while Telenor India’s latest balance sheet is for 2016-17 while Tata Teleservices’ numbers are for 2017-18. 

Analysts say this will make it tough for lenders to recover their dues once companies have ceased their operations. 

“From the lenders’ perspective, industry liabilities should be divided into two buckets — those with operators still in business such as Bharti Airtel and Vodafone Idea, and those of operators out of business. Lenders are likely to get their money back from operators still in business but it is always tricky to recover dues from the others,” says G Chokkalingam, founder and managing director, Equinomics Research & Advisory Services.

The industry’s accumulated losses are likely to grow further by the end of current financial year because listed operators including Bharti Airtel, Vodafone Idea, Reliance Communications, and Tata Tele (Maharashtra) reported more losses during the first quarter of FY20.

Together these four listed mobile operators reported net losses of Rs 8,334.8 crore during April-June 2019. That is a big jump from the combined losses of Rs 444 crore a year ago. Vodafone Idea was the biggest loser with net losses of Rs 4,874 crore during the first quarter of current financial year.

Among individual operators, Tata Teleservices tops the chart with accumulated losses of around Rs 67,000 crore, including the numbers of Tata Teleservices (Maharashtra). It is followed by Aircel which has losses of around Rs 38,000 crore across its three group companies. Then comes Reliance Communications, with accumulated losses of around Rs 22,500 crore at the end March this year. Next is Vodafone Idea with accumulated losses of Rs 24,300 crore at the end of March this year.