To ring-fence Rs 25K crore Vi publicity, banks look to transform debt into fairness

Worried over the worsening monetary profile of telecom agency Vi, previously referred to as Vodafone Idea, lenders, led by State Bank of India, are taking an in depth have a look at the agency and contemplating numerous choices, together with conversion of debt into fairness to safeguard their publicity.
The firm, which has piled up a debt of near Rs 1.50 lakh crore, has already breached specified covenants involving over Rs 15,500 crore, thus affecting its capacity to generate money flows. “We have to see whether conversion of debt into equity is a good idea. Banks will have to safeguard their interest,” stated a banking supply.
Banks have an publicity of round Rs 25,000 crore in Vodafone. SBI has an publicity of round Rs 11,000 crore, Yes Bank Rs 4,000 crore and PNB Rs 3,000 crore. If the corporate turns into a defaulter, it should add to the unhealthy mortgage issues of banks, that are already struggling to get better funds from debtors amid Covid.
Vodafone Idea shares have crashed 39 per cent to Rs 5.94 on the BSE within the final 9 periods, following the newest developments together with the resignation of Kumar Mangalam Birla as non-executive chairman. As promoters (Vodafone Plc of the UK and Birla group) maintain round 72 per cent stake within the firm, conversion of debt into fairness will carry down promoter stake. Banks can then strive to usher in a white knight to save lots of the corporate as they did within the case of Yes Bank bailout, as per sources.
As of March 2020, present and non-current borrowings together with curiosity accrued was Rs 121,226 crore and financial institution assure was Rs 21,432.9 crore, in accordance with the annual report of the corporate for FY20. Annual covenant testing as on March 31, 2020 resulted in sure ratios breaching the required covenant threshold for loans aggregating Rs 15,520.8 crore. Accordingly, the corporate has categorized Rs 14,275.7 crore from non-current borrowings to present 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 corporate’s auditors stated.
According to the corporate’s auditors SR Batliboi & Associates, owing to its monetary efficiency and monetary situation, the corporate has breached its debt covenants as at March 31, 2020 for which it’s in discussions with numerous 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 stated. The stated assumption of going concern depends upon constructive consequence of firm’s and DoT software with respect to deferred fee of its AGR legal responsibility, waiver of debt covenant breaches and its capacity to generate/organize the money movement that it must settle or refinance its liabilities and ensures as they fall due. Our opinion shouldn’t be modified in respect of this matter, it stated.
Birla had, on June 7, written to the federal government, providing to “hand over” his 27 per cent stake within the firm to any public sector, authorities, or home monetary entity or to another agency that the federal government might imagine match, to be able to hold the corporate going.