Govt's equity pick may help Vodafone Idea refinance debt

The government’s decision to convert Vodafone Idea’s accrued interest into equity is likely to help the telco get some existing bank debt refinanced in the immediate future, which will help free up cash to pay vendor dues and for capex, say analysts.

On Friday, the government agreed to convert Vi’s 16,133.18 crore accrued interest on deferred adjusted gross revenue (AGR) dues into equity at 10 a share. The move came after it received an assurance from Vi’s promoters that they are committed to the company and would bring in the necessary funds. “The government’s decision may encourage lenders to refinance Vi’s existing bank debt, though they are unlikely to take any additional exposure via fresh loans, given the telco’s weak financial position,” Nitin Soni, senior director (corporates) at global ratings agency, Fitch, said.

He added that if the refinancing happens, it would help Vi clear a portion of its dues to tower companies and network vendors and put in some network capex to strengthen its 4G operation in the near term.

At September end, 2022, Vi’s dues to banks and other lenders stood at Rs 15,080 crore. So, any refinancing—or extension/rolling over of current loan repayment deadlines—would be vital as it has a Rs 9,600 crore upcoming debt repayment by September 2023, say analysts.

Vi’s trade payables, reflecting dues to vendors such as tower firms and suppliers including network providers, were at Rs 15,030 crore at end-September, 2022.

Vi quickly needs to clear dues of vendors like Indus Towers and expand its existing 4G network. It also needs to finalise 5G gear supply contracts with the likes of Ericsson and Nokia for rolling out next-gen networks and stem rapid subscriber losses.

Analysts, though, said that while clarity on the conversion issue from the government is positive, it’s not enough to move the needle in terms of securing Vi’s long-term survival versus financially stronger rivals, Reliance Jio and Bharti Airtel.

“Vi needs around a Rs 45,000 crore (over $5 billion) fresh equity infusion to bolster its 4G operation and roll out 5G networks to sustain and compete effectively with Jio and Airtel, and raising additional debt via fresh loans would only further strain its already weak balance sheet,” said Rohan Dhamija, head (India & Middle East) at Analysys Mason.

Another analyst, who did not wish to be named, said whatever capital infusion occurs, must happen in the next 3-4 months, failing which, Vi may find it tough to protect revenue market share as Jio and Airtel would have significant 5G coverage by then and be in a position to poach its customers.

Industry insiders say Vi’s co-owners—UK's Vodafone Group and India's Aditya Birla Group—have committed to put in over Rs 5,000 crore more in the loss-making telco. The founders had previously infused around Rs 4,900 crore, a bulk of which was used by the operator to clear its dues with Indus Towers.