With DoT likely to ask Vodafone India and Idea Cellular to collectively clear nearly US$ 3 billion (Rs 19000 crore approx) of dues before their merger, Merrill Lynch is of the view that this could lead to delay in the deal closure which in turn result in overhang on the Idea stock price.
The Idea stock was down 0.4% at Rs72.75 on the BSE Friday, underperforming a positive broad market.
Bharti Airtel and Reliance Jio are likely to gain incremental market share owing to any potential delay in merger. Vodafone and Idea are likely to be asked to clear dues relating to a mix of pending license fees, spectrum usage charges (SUC) and one-time spectrum charges, ET reported in its April 13 edition.
The report said that any delay in closing the merger would be a likely overhang on Idea’s stock price. Also, Merill Lynch has maintained its Buy on Bharti Airtel stock as it sees the market leader as the best placed to gain market share and control costs and the firm has a ‘No’ rating on Idea Cellular.
Sachin Salgaonkar, research analyst from Merill Lynch in his report further stated that as TDSAT has ordered DoT to grant approval to Bharti Airtel’s acquisition of Telenor India without any bank guarantee, by the same logic Idea-Vodafone merger may still go through.
In any case, the government won’t be able to force either Vodafone India or Idea to clear their licence fee/SUC dues since the matter pertains to computation of a telco’s adjusted gross revenue (AGR), an issue that has been under dispute for more than a decade and is sub judice, according to an executive at one of the two companies.
Idea, which is also seeking approval of 100% foreign direct investment (FDI) in the company ,though is already in discussions with DoT—on behalf of both companies—to determine the total dues that the telco may have to pay up before the merger is approved, the ET report quoted sources as saying.