Care Ratings has downgraded Vodafone Idea's rating on its long-term bank facilities and non-convertible debentures (NCDs) due to significant erosion in overall risk profile of the company after the recent Supreme Court judgement on adjusted gross revenue (AGR) issue.
Care has downgraded long-term bank facilities totalling Rs 49,466 crore and NCDs worth Rs 7,500 crore from A-minus to BBB-minus under credit watch with negative implications.
"The downgrade is on account of substantial impact on the financial risk profile on account of the potential payout against the AGR related disputed liability and continued weak operating performance," said Vodafone Idea in regulatory filings at stock exchanges.
Besides, Care added in another statement, the reasons include de-recognition of deferred assets up to June 30 and provision made for additional depreciation and impairment of assets which has resulted in significant losses in Q2 FY20 (about Rs 50,922 crore).
These losses have resulted in the significant deterioration in the tangible net worth and overall debt protection metrics, leading to sharp erosion in the overall financial risk profile of Vodafone Idea.
Care said the ratings continue to be further constrained due to the elevated debt level, declining trend of subscriber base, technology obsolescence risk and prevalent intense competition in the Indian telecom industry.
"The prevalent high competition in Indian telecom industry has adversely impacted the operating performance of the company and will continue to remain as a key rating sensitivity," said Care. "The telecom industry in India is surrounded by a high level of regulatory uncertainties and Vodafone Idea remains susceptible to adverse regulatory changes."
The Supreme Court last month upheld the government's position on including revenue from non-telecommunication businesses in calculating the annual AGR of telecom companies, a share of which is paid as licence and spectrum fee to the exchequer.
Vodafone Idea, Airtel and other telecom operators may have to pay the government a whopping Rs 1.4 lakh crore following the recent Supreme Court order that has sent shock waves through an industry already grappling with billions of dollars in debt and an intense tariff war to retain customers.
According to the telecom department's calculations, Bharti Airtel faces a liability of around Rs 42,000 crore after including licence fees and spectrum usage charges, while Vodafone Idea may have to pay about Rs 40,000 crore. Jio may have to pay around Rs 14 crore.