Vodafone Idea may get a surprise cash infusion

Vodafone Group Plc and Aditya Birla Group are considering equity infusion into Vodafone Idea Ltd after the government announced a raft of relief measures for India’s struggling telecom companies, two people aware of the discussions said.

The development marks a dramatic shift in the stance of Vodafone Idea’s two biggest shareholders, who had earlier ruled out any fresh investments in the Indian telecom operator, citing adverse regulatory and business environment, the people said, requesting anonymity.

“There is a rethink among the two promoters around investing, although these are still early days,” said one of the two people cited above. “The viability of Vodafone Idea has improved after the moratorium on adjusted gross revenue and spectrum charges were announced last week. The promoters feel bringing in fresh equity will add to investors’ confidence.”

While Vodafone Idea does not require funds immediately, it may need to raise funds from external investors later, and raising equity at the current valuations may cause excessive dilution of their stakes, the second person said. “A fresh round of equity will boost investor confidence, the promoters feel,” the person added.

An email sent to Aditya Birla group did not elicit a response.

Over the past year, the company tried unsuccessfully to raise funds from outside investors because of its deteriorating financial condition and uncertainty about whether the government will announce measures to help the cash-strapped telco. Vodafone Idea had announced a plan to raise at least ₹25,000 crore in September last year.

Analysts said that some of the investors’ worries have been addressed by the recent measures announced by the government to improve the telecom sector’s health.

Vodafone Group owns 45% of Vodafone Idea, and the Indian promoter group, which includes Kumar Mangalam Birla and Aditya Birla Group firms, holds a 26% stake.

Vodafone Idea’s current market value is ₹31,000 crore. The company has to repay ₹9,000 crore of loans to banks before the end of this fiscal, including ₹5,000 crore of non-convertible debentures.

Emailed queries to Vodafone Group and Aditya Birla Group remained unanswered till press time on Monday.

Vodafone Idea’s gross liabilities, including regulatory dues, stood at around ₹1.9 trillion as of 31 March.

The company owes a total of ₹48,000 crore to eight banks, led by State Bank of India. Of this, borrowings amount to ₹23,000 crore, and the rest is in the form of bank guarantees.

Bankers estimate the annual debt repayment of Vodafone Idea to be around ₹6,000 crore over the next two years. Moreover, after the four-year holiday ends, payments to lenders and the government are also set to increase sharply.

Vodafone Idea’s annual dues repayment post the four-year payments moratorium will increase from ₹24,800 crore currently to ₹43,000 crore, while dues to the government will likely grow from ₹1.6 trillion as of FY21 to ₹2.2 trillion after the moratorium ends, according to a 16 September Nomura note to clients.

As part of the telecom relief package, the government has removed requirements for multiple bank guarantees, and telecom companies can provide a single bank guarantee for different licensed service areas. In addition, for future spectrum auctions, telcos will also not be required to provide bank guarantees to secure instalment payments, which essentially means lower debt. Livemint