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ATC has option to convert Vi’s OCD into equity, Indus continues its wait

Cash-strapped Vodafone Idea (Vi) faces hefty payouts of Rs 4,300 crore towards debt and 5G airwave instalments in the current September quarter, which is likely to impact its future payments to Indus Towers, especially if the loss-making telco fails to close its long pending fundraise quickly, said IIFL Securities.

“Basis Vi’s disclosures, it faces large payouts in 2QFY24…of the estimated Rs 4,300 crore outgo, Rs 2,600 crore is towards debt repayments (maturing) and a Rs 1,700 crore instalment related to 5G spectrum, which may exert pressure on payments to Indus, unless Vi raises funds,” IIFL Securities said in a note.

The brokerage added that a redemption of Rs 800 crore — out of the Rs 1,600 crore optionally convertible debentures (OCDs) issued to American Tower Corp’s India unit (ATC Telecom Infrastructure Pvt Ltd) — is also due in the fiscal second quarter. Vi though has the flexibility to skip payment, and the US tower company can subsequently exercise an option of converting the OCDs into equity.

Last week, the Boston-based tower company had informed the US Securities and Exchange Commission (SEC) that Vi’s OCDs would mature in two tranches of Rs 800 crore each on August 27, 2023 and August 27, 2024. The OCDs are to be repaid by Vi with interest, and convertible, at ATC TIPL’s option, into equity of Vi, and such equity would be freely tradable in the open market, beginning on the one-year anniversary of the date of issuance of the OCDs.

Accordingly, IIFL has cautioned that Indus’ receipts from Vi could fall short unless there is significant fundraising at Vi.

At its fiscal first quarter earnings call last week, Indus’ top management said the tower company is in constant dialogue, urging its key customer, Vi to clear its massive past dues, estimated at Rs 9,500 crore.

But Vi, which was earlier expected to clear its past dues to Indus between January and July 2023, has cited fresh challenges in making committed payments pertaining to outstanding sums due as at December 31, 2022.

Analysts are not surprised, saying that while Vi has been making current bill payments to Indus on time for the past six months, its financial position remains stressed, reflected in its delayed licence fee and spectrum usage charge (SUC) payments to the government.

“While Vi has adequately paid its due to Indus Towers in 1Q, it continues to pay only 10% of its license/SUC dues to the government, implying that its cash flow pressures remain elevated,” Jefferies said in a note.

The loss-making telco urgently needs a large dose of funding – possibly upwards of Rs 50,000 crore – for expanding 4G coverage and also to help finance its pending 5G rollout, and garner adequate cash flows to pay off, among others, statutory and vendor dues. But both current lenders and potential third-party equity investors have stressed on the need for promoter infusion first, which is also pending. Telecom Talk

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