Vodafone Group Plc and Aditya Birla Group likely to cede control if find an investor

Vodafone Group Plc and Aditya Birla Group may cede control of Vodafone Idea Ltd (VIL) if a strategic investor wants to take control of the telco, two people directly aware of the internal discussions said.

The development marks new thinking on the part of Vodafone Idea’s promoters, who were initially looking to bring in financial investors but have not been successful in raising the required funds, putting a question mark on the telco’s survival, the people cited above said, requesting anonymity.

“The initial plan was to get an investor in and, alongside, the two promoters would have invested some more equity; but that plan has not worked out so far,” said one of the two people cited above.

The two promoter groups are in talks with at least five investors, both strategic and financial, including three US-based funds, to sell a combination of Vodafone Idea shares and convertibles to be able to raise money for the cash-starved telco, repay government and bank dues, the people said.

Vodafone Idea’s UK parent owns a 45% stake in the company, and the Indian promoter group, which includes Kumar Mangalam Birla and Aditya Birla Group firms, holds a 26% stake. “The two promoter groups are open to the option of doing away with a majority stake or transfer control,” said the first person, adding that this option will be considered only if the foreign entities agree to pay a premium to the prevailing market price of Vodafone Idea so that the company gets enough funding to take care of the telco’s ballooning dues.

Emails sent to Vodafone Plc, Vodafone Idea and Aditya Birla Group remained unanswered. Multiple messages sent to the AB Group did not elicit any response.

Vodafone Idea’s current market value is ₹24,000 crore, and if an equity deal of $2 billion ( ₹15,000 crore) happens at the current stock price, the promoter holding will get diluted by 62.5%, which means Vodafone Group’s holding will come down to around 28% and Aditya Birla group’s holding will be lowered to around 16.25%.

Vodafone Idea’s stock hit the lower circuit twice on Friday after the Supreme Court dismissed the telco’s plea to allow payment of self-assessed AGR dues that are way lower than the one demanded by the Department of Telecommunications (DoT). The shares fell 10% to ₹8.36 on BSE.

The telco desperately needs to raise capital to deal with its liabilities of ₹1.8 trillion. The government has demanded ₹58,254 crore as AGR dues from Vodafone idea, while the company has self-assessed this at ₹21,533 crore. Vodafone has so far paid only ₹7,854 crore.

The Supreme Court’s Friday verdict may make fundraising an uphill task for Vodafone Idea since potential investors can no longer expect the telco to generate enough cash in the near future to clear its dues.

The apex court on Friday dismissed Vodafone Idea’s plea to let it pay recomputed AGR dues. “In such a scenario, the best option is to sell equity shares and raise money for the telco,” said the first person.

With mammoth government dues, low tariffs and average revenue per user at less than the desired level, it will be challenging for the telco to convince investors to pump capital into the firm through any instrument other than shares. A week back, the government allowed Vodafone Idea to raise ₹15,000 crore through foreign direct investment.

On 8 July, Mint reported that Vodafone Idea is planning to sell its $1 billion worth of fibre and data centre assets to repay dues. TPG Capital, Apollo Global and Carlyle Group are among private equity giants in early talks with Vodafone Idea on this matter, the report said.

Vodafone announced last year that it would raise ₹25,000 crore through a sale of equity and debt securities. The telco continues to bleed due to the current low-tariff regime that started four years back after Reliance Jio Infocomm’s entry triggered a brutal price war.

Vodafone has recently expressed its inability to pay the department of telecom the instalment of ₹8,292 crore that is due on 9 April 2022 since the company’s cash will be used for payment of AGR dues. In a 25 June letter to the telecom secretary, Vodafone sought a year’s time till April 2023 to pay the spectrum instalment.

The company reported a consolidated loss of around ₹7,023 crore for the quarter ended March. Vodafone Idea posted a loss of ₹11,643.5 crore in FY20. Vodafone Idea needs to pay ₹22,500 crore between December 2021 and April 2022 to lenders and the government. Live Mint