Additional debt won't cause much stress on Vi

KOLKATA: Vodafone Idea‘s plans to raise an additional Rs 25,000 crore via the debt route won’t cause any financial stress as the telco has sharply cut bank exposure – by almost Rs 35,000 crore – in the past two-and-a-half years and improved operational performance, top company sources told ET.

The telecom JV of UK’s Vodafone Group and India’s Aditya Birla Group (ABG), in fact, is counting on the targeted funding primarily to plug its 4G coverage gaps and rein in customer losses to be able to compete more effectively with bigger rivals, Reliance Jio and Bharti Airtel in its priority markets.

The Rs 25,000 crore planned debt funding is in addition to the Rs 20,000 crore that Vi plans to raise via equity and/or equity-linked instruments by the June quarter of FY25.

“Post-announcement of the (telecom) reforms package in September 2021, the overall bank exposure in Vi has been reduced by about Rs 35,000 crore, and therefore, further amounts will be raised via debt funding,” one of the Vi sources cited told ET.

Vi’s current bank debt has dropped below Rs 4,500 crore, which is learnt to have encouraged lenders to consider fresh loans to the telco.

The senior company source added that Vi’s continuing loss of subscribers is largely due to the lack of adequate 4G coverage in key markets. “This gap in our 4G coverage will be addressed with this new (Rs 45,000 crore) funding via debt and equity.”

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The telco’s gross mobile user base shrank by 1.36 million to 223.05 million at the end of December, hurt also by the lack of 5G services even while rivals Airtel and Jio are set to offer the next-gen mobile broadband services nationally.

Earlier this week, Vi said the targeted Rs 45,000 crore fundraising would enable the carrier to make investments towards significant expansion of 4G coverage, its pending 5G network rollout and capacity expansion, moves considered critical for the cash-strapped telecom company to compete with its bigger rivals and stay relevant in India’s increasingly duopolistic telecom turf.

Company sources said that the earlier commitment of Vi’s promoters (read: UK’s Vodafone and Aditya Birla Group) “remains unchanged” in so far as participating in the telco’s upcoming Rs 20,000 crore equity raise goes.

Cash-strapped Vi, in fact, is believed to have already appointed bankers and counsels for implementing the targeted equity fundraising by Q1FY25. “The telco is primarily exploring three potential equity funding mechanisms for the Rs 20,000 crore equity raise, including a preferential allotment, a rights issue and a follow-on public offer (FPO)… a possible private placement is also under consideration,” a person aware of the matter told ET.

Vi’s decision to quickly appoint bankers and counsels is because the telco’s leadership is believed to have the comfort of multi-billion dollar commitments from potential equity investors for the targeted equity raise, the person added.

At press time, Vi, though, did not respond to ET’s queries on the appointment of bankers/counsels or the commitment of potential equity investors.

Brokerage Morgan Stanley said any potential large fund-raising by Vi further enhances the possibility of the current telecom market structure in India prevailing and will lower the probability of any imminent consolidation in the industry.

“If Vi’s potential $5.5 billion fundraising, including equity/equity-linked instruments of $2.4 billion, closes, we see the current market structure continuing near-term, and increasing our conviction on the industry being in repair phase with a potential increase in tariffs,” Morgan Stanley said in a research note.

Vi will call for a meeting of its shareholders on April 2 to approve the equity fund raising. At more than 33%, the government is the largest shareholder in the company. Co-promoters, UK’s Vodafone and Aditya Birla Group, hold 32.3% and 18.1%, respectively, in Vi.

The telco’s shares gained 3.95% to close at Rs 14.21 apiece on BSE on Friday, giving it a market cap of Rs 69,271.38 crore.

Analysts, though, said that despite the sharp decline in Vi’s bank debt, the company’s net debt had widened to Rs 2.14 lakh crore in the fiscal third quarter of FY24, and cash and cash equivalents were at a modest Rs 318.9 crore. Further, they foresee increased financial stress for the telco after the current moratorium on spectrum payments ends.

Vi’s leadership recently estimated that the telco’s annual payouts to the government would jump to around Rs 28,000 crore in FY26 when the four-year payment moratorium ends. The government payouts will be towards deferred spectrum dues of past auctions as well as annual instalments for past adjusted gross revenue (AGR)-related dues.

William Murphy

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