2020-06-25 10:16:00

MUMBAI: Telecom tower infrastructure services provider Bharti Infratel Ltd on Wednesday deferred one more time a decision on merger of Indus Towers Ltd with itself. The stock lost 4% in Thursday morning trade, leading the losses in Nifty shares.

In a meeting on Wednesday, the board of Infratel extended the long stop gap date for the proposed merger to 31 August.

The companies received regulatory approvals earlier this year. Despite that, they extended the long stop date on the original agreement to April, then to June and now to August. The extensions coincide with the Supreme Court’s deliberations on the adjusted gross revenue (AGR) dues to be paid by the telcos.

Last week the Supreme Court asked private telecom companies (telcos), main tenants of Infratel, to pay a “reasonable” upfront payment of the AGR dues so as to consider a 20-year repayment period for the balance amount. It allowed the telecom department to consider the proposals, deferring the hearing to the third week of July.

Bharti Airtel has paid 41% of the total AGR dues demanded by the government till now. Vodafone Idea payments amount to only 12% of the total AGR dues demanded by the government.

Analysts believe the apex court’s approval for 20-year staggered payment is contingent on Vodafone Idea making a “reasonable” upfront payment of AGR dues. If Vodafone Idea has to make upfront payment similar to Airtel (as a % of total AGR dues), then it will have to shell out 16,990 crore, a near impossibility considering the company’s precarious financial situation.

But the company is seen to have the ability to pay lower amounts, monetising its assets and raising funds from promoters.

One such option is to sell its 11.15% stake in Indus Towers for cash upon merger with Bharti Infratel.

At the time of merger announcement in April 2018, this stake was projected to fetch Vodafone Idea Rs6,500 crore. The fall in Infratel’s stock since then lowered the potential value. But deferment of merger with Infratel makes it difficult for Vodafone Idea to immediately monetise its stake in Indus Towers. Not surprisingly, Vodafone Idea stock has traded lower, down 2% so far in today’s session.

As such, the delay in merger with Indus Towers does not bode well for Infratel. The company holds 42% stake in Indus Towers and the postponement of final decision is seen to be driven by deteriorating business conditions.

“We believe this could be due to the Supreme Court’s pending decision on AGR liabilities which would decide the fate of a telecom player (Vodafone Idea),” an analyst said in a note to clients. “Viability of Bharti Infratel’s operating model depends on the number of players in the telecom industry. Duopoly in the market where one player (Reliance Jio) has its own infrastructure could make the Infratel’s working model unviable.”

Vodafone Idea is a large tenant for both Infratel and Indus Towers. Any adverse ruling by the Supreme Court impacting Vodafone Idea’s financial viability is seen to be hitting business prospects of the two tower infrastructure companies.

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