DoT notice an event risk for 3 firms: Fitch

DoT notice an event risk for 3 firms: Fitch

Ratings firm not taking immediate rating action though

Any payment that the three India-based firms — GAIL (India) Limited, Oil India Limited and Power Grid Corporation of India — may have to make under a demand notice from the Department of Telecom (DoT) poses as an event risk for the companies’ ratings, according to Fitch Ratings.

Fitch is not taking immediate rating action on the companies as the Supreme Court of India allowed the companies to withdraw their clarification applications on February 14 and resolve their dispute with the DoT outside the court.

This is in stark contrast with to the court’s decision to demand immediate payments from the telecom companies that are also involved in the dispute. “We expect the three companies to eventually resolve the dispute., although resolution timing is uncertain. A speedy solution is important to prevent disrupting the companies’ investment plans and damaging their performance. The three companies are considering an appeal against the demand notices. We understand that they have the option to resolve the matter through alternate dispute-resolution mechanisms available to State-owned enterprises. This is in addition to the legal options available to telecom licence holders in general,” said Fitch in a statement.

DoT has issued demand notices to GAIL, OIL and Power Grid for ₹1,83,100 crore, ₹48,000 crore and ₹22,000 crore respectively.

The notices include licence fees on non-telecom revenue and additional interest and penalties on the licence fees.

However, the three companies’ telecom-related revenue is insignificant, at around ₹50 crore, ₹1 crore and ₹2,300 crore respectively, for the same time period as the demand notices.

The three companies have created telecom infrastructure for internal use and have obtained national long distance and internet service provider licences to rent out spare capacity.

They maintain that their licences differ from the unified access licences held by telecom companies, hence, the court’s decision on adjusted gross revenue for telecom companies does not apply to them.

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