Fundraising plans of Vodafone Idea hit hurdles

Vodafone Idea’s (Vi) big-ticket fundraising plans have hit an air pocket following differences with key members of the prospective lenders’ consortium such as Oak Hill and Varde Partners over funding terms and furnishing of guarantees in case of payment defaults, people aware of the matter said.

While talks between the two sides have not fallen through completely, the telecom JV between UK’s Vodafone Group and Aditya Birla Group is already exploring other potential funding partners and is confident of securing funding by the end of this month, one of the people said. The person added that there is surplus cash with US funds, and the Indian telecom business outlook is looking up amid surging data consumption growth, post-pandemic.

The exclusivity period for talks between the group of potential lenders consisting of Oak Hill, Pacific Investment Management Co, Sixth Street, Twin Point Capital and Varde Partners and Vodafone Idea ended February 28, without any deal. Of the original members of the consortium, GoldenTree has already exited.


Several Unresolved Issues
The original deadline for exclusive talks was January 31, which was extended by a month.

Spokespersons for the Vodafone Group, Oak Hill and Varde declined to comment while Vi and the Aditya Birla Group did not reply to ET queries till press time.

Sources in financial circles and top industry executives said Vi’s potential foreign lenders have voiced apprehensions about the cash-strapped telco’s future ability to meet upcoming payment obligations, including adjusted gross revenue (AGR) dues and spectrum liabilities, especially as the company’s revenue has largely remained stagnant and customer losses have continued.

“Vi’s talks with the Oak Hill consortium have not led to a binding agreement as there were unresolved issues around funding terms, guarantees and claims to the struggling telco’s assets in case of a payment default,” a person close to the global consortium told ET.

Vi shares closed 1.43% lower at Rs 11 on BSE on Thursday.

Over the past few months, Vi has been in talks with the Oak Hill-led consortium to finalise the terms of a $2 billion (Rs 15,000 crore approx) credit line via hybrid convertible funding instruments, comprising bonds and warrants. The credit line, which was to be used to expand the carrier’s 4G network, was meant to be a part of the overall Rs 25,000 crore that Vi plans to raise via a mix of debt and equity.

But the operator has been struggling to turn around its financials and has been unable to stop customer losses. In the October-December quarter, the telco’s revenue rose less than 1% on quarter, compared with Airtel’s nearly 7% and Jio’s 6% growth. Its average revenue per user at December end was at Rs121, lagging Airtel’s Rs 166 and Jio’s Rs 151.

Goldman Sachs said in a report that the telco “has very limited liquidity available”. The company had cash of Rs 200 crore at December end. Its Ebitda is expected at Rs1,800 crore in the March quarter when it needs to pay some Rs 500 crore as bank interest and Rs 700 crore as upfront payment for the spectrum it bought in the just ended auctions.

Despite limited participation in the recent airwave sale, Vi’s annual spectrum payment obligation to the government will be at Rs 14,100 crore starting FY23, the highest among the Big 3 telcos, according to Goldman Sachs.

Besides this, Vi needs funds to also start clearing its Rs 50,400 crore dues to the government based on adjusted gross revenue (AGR) in 10 annual instalments.

"Any Indian telco, particularly in distress, needs to credibly demonstrate its ability to realise its turnaround strategy and cash flow projections to earn and sustain overseas investor confidence…it’s an uphill task, but doable,” said Hemant Mishr, chief investment officer at Scube Fixed Income, a Singapore-based fund.

He added that on the positive side, given the liquidity stance of global central banks, there is “abundant liquidity sloshing globally and investors are on the lookout for high yielding assets.”