Lenders to debt-laden Vi look at swapping debt for equity

Lenders to Vodafone Idea Ltd (Vi) are discussing a plan to swap their debt for equity which would significantly dilute the stakes of the firm’s promoters — Vodafone PLC and the Aditya Birla group.

According to a banking source, the debt-to-equity swap plan is on the table and both promoters have agreed to dilute their shareholding. While Vodafone PLC of the UK owns 45 per cent in Vi, the Aditya Birla group holds a 27 per cent stake in the telecom firm.

“All options are being discussed. No one wants this company to go bankrupt or into liquidation,” said the source.

The telco owes about Rs 25,000 crore to its lenders. State Bank of India has the highest exposure at Rs 11,000 crore, followed by YES Bank (Rs 4,000 crore), and IDFC First Bank (Rs 3,240 crore). Punjab National Bank has also lent Rs 3,000 crore to the company. Some of the banks are even getting ready to provide for the losses from the Vi account in the September quarter. The company’s total liabilities, including government dues, are Rs 1.8 trillion.

At present, there are no promoter or corporate guarantees given by either of the promoter entities, the banker said. Over the years, Vodafone PLC has invested $30 billion in Vodafone India and has written off the entire investment. Vodafone PLC first entered India in May 2007 by buying out Hutchison’s stake for $11 billion. It later acquired the Ruia family stake for an additional $5 billion in April 2007. The Aditya Birla group was also an early investor in telecom and was in the sector since it was opened up in 1996.

Both promoters have jointly invested Rs 1.7 trillion in the telecom sector and have now decided not to invest any more funds in the merged entity, Vi. The source said both promoters have offered to dilute their entire shareholding without seeking any returns on their investments.

All stakeholders in the company, including the current shareholders, lenders and the Indian government, are working on various options to keep the company running as a “going concern” and BSNL is likely to be roped in to run the company, the source said.

Shares of Vodafone Idea closed 1.49 per cent down at Rs 5.94 on the BSE on Thursday.

On the exit of Aditya Birla group Chairman Kumar Mangalam Birla from the board of Vodafone Idea, legal sources said the move showed that the company had reached a point of no return and the group did not want to associate itself with the telecom venture anymore.

“If the banks take a 90 per cent haircut and the Indian government agrees to a floor price for all telecom companies, then it may save the company. Otherwise, liquidation is the only option, which is not good as India will then become a two-player market,” said HP Ranina, a senior lawyer.

Vodafone PLC merged its India operations with Idea Cellular in 2017 in a $23-billion deal. The merger was completed in August 2018 but despite the initial hype, the company made steady losses. The company, with 270 million customers, is fast losing subscribers, who are worried about its future. Intense competition from Reliance Jio and Bharti Airtel, and adverse court rulings further eroded the company’s fortunes. The high cost of operations of Vi was another reason for the merger’s failure, say telecom analysts. Business Standard