Telecom Operators May Offer Spectrum, Licence, Tangible Assets, Tax Refunds as Security for AGR Dues

Vodafone Idea and Bharti Airtel are considering offering spectrum, licence, tangible net assets and tax refunds as security in guarantee of payment, CNBC-TV18 reported citing sources.

The development comes after the Supreme Court last week asked the telecom operators to spell out the roadmap, timeline and security of payment.

The court was hearing a petition filed by the Department of Telecom on permitting the telecom operators to pay the remaining AGR dues in a staggered manner over a period of 20 years.

The apex court noted that a staggered payment schedule could not be provided without security or undertaking by the telcos.

"Telecom operators are assessing the value of tangible assets. Net assets will play a sizable role in functioning as the security that is being asked from them," a highly-placed source aware of the issue told CNBC-TV18.

Speaking on condition of anonymity, the source added: "In the court, the counsels of Bharti Airtel and Vodafone Idea had said that licence and spectrum can be cancelled on non-payment. NCLAT had ruled in favour of spectrum qualifying as an asset but that had been contested by the DoT."

The source further said that while the telecom operators are offering spectrum and licence as security, it remains to be seen if the Supreme Court will accept it.

"Another security being considered is the tax refunds due to the two telecom operators.

Tax refunds to the tune of Rs 35,000 crore are due to the telecom operators. Add to that pending payment by public sector units to the tune of approximately Rs 20,000 crore," another source was quoted as saying.

The value when seen together would be a sizeable relief, the source added. But personal or bank guarantees appeared very improbable.

"Bank guarantees are very difficult to furnish as the banking sector already has a high exposure to telecom operators and is unlikely to provide for further guarantees, the source said and added that "even if they do, current norms require 70-90% of the payment to be provided in the form of securities of the same value which will be difficult for the operators at this stage".

"Vodafone idea has already said that it cannot provide for bank guarantees," the source said.

According to the sources, the telecom operators in their reply may detail how it is impossible for publicly listed firms to give personal guarantees as it can cause disruption in shareholder value.

The companies will further have to provide a detailed estimation of the anticipated revenue and cash outflow, sources told CNBC-TV18.

"When telecom operators apply for spectrum, they furnish a detailed report on the past and current revenue growth and projection on revenue visibility for the coming years. That is how 20-year licences are given out to telecom operators. That should also play a key role," Rajan Matthew, Director General of the Cellular Operators Authority of India told CNBC-TV18.

The SC had some harsh comments on the idea of 20 years of staggered payment. Though 20 years is the preferred timeline, telecom operators are mulling asking for at least 10-15 years, if not 20 in their response, said the sources.

"The DOT has calculated the time frame based on what will leave the least dent on the balance sheet of the telecom operators, they may request and outline how 10-15 years is the minimum time frame they need to make the payment," they said.

Bharti Airtel and Vodafone Idea have to now provide a reply by June 17, a day before the hearing on June 18.