The Supreme Court landed a Rs 1.3 lakh crore blow to the telecom companies on Thursday by upholding the government's definition of adjusted gross revenue (AGR) thereby forcing debt-ridden telcompanies to cough up big bucks.

Former telecom secretary, R Chandrasekaran, and Sunil Shrivastava, former deputy MD, State Bank of India discussed the impact of this and the scenarios investors should be working with.

Chandrasekaran said while he would not like to speculate on what the government might do but would like to state some of the options that could be looked at. Option one is to enforce the court order which is potentially disastrous for the telecom sector because not only are the company balance sheets in poor shape but they don’t have the money to pay.

“This will result in increased borrowing and in a sense funneling more money from banks to the government via the balance sheets of the telecos,” he said.

Explained:

Here is how the Supreme Court ruling on AGR issue will affect telecom firms

The second option would be staggered payments keeping the amount untouched. However, this option may or may not provide any significant relief because even staggered payments would carry interests.

The third option is for the government to forgo penalty and the interest amount keeping the practical aspects not the legality or morality in mind, said Chandrasekhar.

If the problem is seen as much more acute then the government can provide relief on the totality of the demand given the implications it has for the telecom sector.

Srivastava said this decision was most unexpected. Given the uncertainties associated with this sector, most of the banks may not have extended their exposures to the telecom sector in the last 5-6 years. Also most of the existing exposures would largely be a way of non-fund based facility for payment of spectrum charges etc over the next 10-15 years.

When asked if NPA is a concern with Bharti Airtel stock, Shrivastava said, with Bharti perhaps less so, with Vodafone their balance is stressed but since they belong to a large group they may be able to sort out the issue.

First Published:Oct 25, 2019 3:23 PM IST