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Vodafone Idea dips 3%; here's why telco stock is trending

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Vodafone Idea shares were trading nearly a percent lower at Rs 10.35 on National Stock Exchange. On the Bombay Stock Exchange, they were down over 1 percent to Rs 10.31. The stock has risen over 3 percent in the past five sessions. The company held talks with State Bank of India (SBI) and other banks for a possible recast of loans. 

Vodafone Idea dips 3%; here's why telco stock is trending
Vodafone Idea shares have declined as much as 3 percent to Rs 10.21 after rising to Rs 10.51 in early deals after the telco reportedly held talks with State Bank of India (SBI) and other banks for a possible recast of loans.
At 2:00, the shares were trading nearly a percent lower at Rs 10.35 on National Stock Exchange. On the Bombay Stock Exchange, they were down over 1 percent to Rs 10.31. The stock has risen over 3 percent in the past five sessions.
The telecom company has reached out to a consortium of lenders, including State Bank of India to recast loans by either holding the interest payments, increasing the repayment tenures or lowering the interest rates, a report on Economic Times said.
If the banks approve this recast, the financial strain on Vodafone Idea could be eased. These banks have an exposure of Rs 14,000 crore in the company.
According to some reports, the telecom company has also informed the consortium that it has resumed talking with global investors to raise funds. Its promoters have also decided to invest $200 million into the beleaguered company, per a Mint report. The fresh fund infusion is expected to maintain the stake of the promoters in the company with foreign investors coming on board.
What is loan recasting?
Loan recasting means restructuring loans by offering concessions like longer repayment tenure, lower interest rates or a combination.
Can companies do this?
As per the Reserve Bank of India's (RBI) June 2019 restructuring framework, banks can renegotiate the loan dues. But this can only happen if the promoters put fresh equity to improve the company's liquidity.
While Aditya Birla Group's Kumar Mangalam Birla will infuse around $200 million into the company, the other parent Vodafone Group may monetise stake in Indus Towers and invest it in Vi.
Which banks have exposure to Vodafone Idea?
IDFC First Bank and Yes Bank have the highest exposure to the company in terms of materiality. The former has exposure to Vi worth Rs 3,240 crore or 2.90 percent of the book. Yes Bank's exposure is 2.40 percent of the book or worth Rs 4,000 crore.
The State Bank of India has exposure of Rs 11,000 crore but only 0.43 percent of Vi's books.
How will recasting impact Vodafone Idea?
Per the ET report, Vodafone Idea can save as much as Rs 1 lakh crore in cash flows over the next four years. It can give the company some power in negotiations with global investors.
Currently, Vi's total borrowings stand at Rs 23,400 crore. It is expected to pay Rs 2,600 crore interest to banks. And some Rs 6,000 crore payment for the redemption of non-convertible debentures from December. This even after the government gave the telco a lifeline earlier in September when it was on the brink of bankruptcy.
In the relief package, the government announced a temporary prohibition on the payment of future AGR dues. It also excluded non-telecom revenue from the AGR dues prospectively.
AGR is a fee-sharing mechanism between telecom companies and the Centre. Telcos pay a percentage of their adjusted gross revenue (AGR) to the government. But for a long time, the sector has been in the middle of a debate on whether or not non-telecom revenue should be a part of the AGR dues.
While the relief package has given Vodafone Idea much-needed breathing space, it also showed the government's intent to keep the telecom sector a three-player market.
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