Saturday, 25 Jan 2020

Investors expect favourable outcome for telcos from SC ruling

New Delhi, Jan 15 : Large sections of the markets and investors are factoring in a favourable outcome for telecom service providers in the AGR ruling in the Supreme Court.

According to a research note by Bank of America Merrill Lynch, investors expect that telcos may be asked to pay only the principal of $1.5-$ 2 billion and interest and penalty could be waived off. The AGR review petition decision is expected this week, as per reports.

The note said that a large section of investors expect a largely favorable outcome. Investors also expect that the principal payment could be staggered over time rather than an upfront payment and giving relief to non-cellular companies like ISPs, and utility companies.

It said that since October 24 when the Supreme Court announced its decision, Bharti Airtel and Vodafone Idea stocks are up 26 and 40 per cent, respectively, versus the Sensex which was up only 7 per cent, mainly led by tariff hike and the expectation that review petition or government help may provide relief to telcos.

"We hence do not expect telcos to positively react in a scenario the final outcome is on the lines of above expectations," the note added. "We find Bharti well-placed as either India moves towards 2-player market or relief given to sector helps Bharti as much as VIL (Vodafone-Idea Limited)."

Among the theoretical scenarios being built in the research note, the what could surprise in the Supreme Court decision is if the judges stick to the same verdict that telcos may need to pay $5 billion by January 23.

"In Scenario 1, we consider this as negative for VIL and mixed for Bharti (negative as Bharti needs to pay fine and positive as Bharti gains market share with India being a 2 player market hence overall mixed)," it said.

Scenario 2 Telcos are asked to pay $5 bn but the deadline of January 23 is removed and they make a staggered payment. Here also impact on Bharti/VIL is similar to scenario 1.

Scenario 3 Telcos are asked to make only principal payment but an upfront one. In this scenario, India remains a 3 player market but Bharti/Jio gain market share as VIL's stretched balance-sheet could help them gain shares.

The note says that if the telcos do not get a satisfactory outcome from the review petition, they are most likely to seek a curative petition.

A curative petition however is not very easy to justify- as it has to be based on a humanitarian ground. The likely justification the telcos would give to qualify for a curative petition would be that the case affects 300 million plus citizens,it would have a negative impact on the GDP of the country and it would impact the future of a strategically important sector in the country.

The bench for curative petition has 5 judges with 2 new judges appointed. The January 23 deadline may be pushed back in a scenario telcos apply for curative petition as new judges hear the case.