August 6, 2021 4:00:47 am
Worried over the worsening financial profile of telecom firm Vi, formerly known as Vodafone Idea, lenders, led by State Bank of India, are taking a close look at the firm and considering various options, including conversion of debt into equity to safeguard their exposure.
The company, which has piled up a debt of close to Rs 1.50 lakh crore, has already breached specified covenants involving over Rs 15,500 crore, thus affecting its ability to generate cash flows. “We have to see whether conversion of debt into equity is a good idea. Banks will have to safeguard their interest,” said a banking source.
Banks have an exposure of around Rs 25,000 crore in Vodafone. SBI has an exposure of around Rs 11,000 crore, Yes Bank Rs 4,000 crore and PNB Rs 3,000 crore. If the company becomes a defaulter, it will add to the bad loan problems of banks, which are already struggling to recover funds from borrowers amid Covid.
Vodafone Idea shares have crashed 39 per cent to Rs 5.94 on the BSE in the last nine sessions, following the latest developments including the resignation of Kumar Mangalam Birla as non-executive chairman. As promoters (Vodafone Plc of the UK and Birla group) hold around 72 per cent stake in the company, conversion of debt into equity will bring down promoter stake. Banks can then try to bring in a white knight to save the company as they did in the case of Yes Bank bailout, as per sources.
As of March 2020, current and non-current borrowings including interest accrued was Rs 121,226 crore and bank guarantee was Rs 21,432.9 crore, according to the annual report of the company for FY20. Annual covenant testing as on March 31, 2020 resulted in certain ratios breaching the specified covenant threshold for loans aggregating Rs 15,520.8 crore. Accordingly, the company has classified Rs 14,275.7 crore from non-current borrowings to current maturities of long-term debt.
“Borrowings has been identified as a key audit matter due to debt covenant testing, change in credit ratings of the loans and various correspondences received from banks and financial institutions for additional security or increase in interest rate resulting in recognition, presentation and measurement complexities,” the company’s auditors said.
According to the company’s auditors SR Batliboi & Associates, owing to its financial performance and financial condition, the company has breached its debt covenants as at March 31, 2020 for which it is in discussions with various lenders. “This has impacted the company’s ability to generate the cash flow that it needs to settle/refinance its liabilities and guarantees as they fall due, resulting in material uncertainty that casts significant doubt on the company’s ability to make the payments mentioned therein and continue as a going concern,” the auditors said. The said assumption of going concern is dependent upon positive outcome of company’s and DoT application with respect to deferred payment of its AGR liability, waiver of debt covenant breaches and its ability to generate/arrange the cash flow that it needs to settle or refinance its liabilities and guarantees as they fall due. Our opinion is not modified in respect of this matter, it said.
Birla had, on June 7, written to the government, offering to “hand over” his 27 per cent stake in the company to any public sector, government, or domestic financial entity or to any other firm that the government may think fit, in order to keep the company going.
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