Vi fundraising may not click until new govt comes online

Vodafone Idea’s ongoing fundraising is likely to be on hold till a new government takes charge after the elections and provides clarity on the conversion of more statutory dues of the company into equity, senior bankers and industry executives aware of the matter said.

The telecom operator, in which the government had become the largest shareholder after the first round of dues-to-equity conversion, aims to raise another up to Rs 35,000 crore through debt and other facilities, after having mopped up more than Rs 20,000 crore through a share sale last month.

Vi’s lenders are seeking clarity on future equity conversions by the government, as well as the outcome of the telco’s curative plea in Supreme Court over an earlier order on its arrears based on adjusted gross revenue. These issues, according to bankers, will ultimately determine the cash-strapped company’s future regulatory payment obligations, especially after the moratorium on the payment ends next year.

Banks are likely to also undertake a techno-economic viability study to assess Vi’s financial position before taking fresh loan exposure to the company, the people cited said.

“Banks will need to assess both Vi’s business plans as well as how it’s going to manage its government dues before deciding whether to lend more money, which will all be done post-election results," a senior bank official told ET.

Vi and its promoters, Aditya Birla Group and UK’s Vodafone Plc, did not respond to emails seeking comment.

Shares of the company closed 0.5% lower at Rs 13.50 on the BSE Wednesday.

At the end of the quarter through March 2024, Vi had government liabilities of more than Rs 2 lakh-crore relating to spectrum payments and AGR dues. Its debt from banks and financial institutions, though, fell to Rs 4,040 crore from Rs 7,140 crore in the previous quarter.

According to Kotak Institutional Equities, Vi has around Rs 3,500 crore of dues coming up for repayment by March 2025. According to the brokerage, the telco’s long-term revival will require continued support from the government as well as some moderation in competitive intensity, as it estimates Vi is staring at a cash shortfall of Rs 10,400 crore over FY25-27 and Rs 74,000 crore during FY28-32, especially once the telco’s large repayments kick in from FY26 after the moratorium on spectrum/AGR liabilities ends in September 2025.

As per analyst estimates, Vi faces an initial Rs 27,000 crore annual pay-out in FY26, following which the annual payments are estimated to jump to Rs 41,500 crore from FY27 to FY31.

Having concluded the Rs 20,000-plus crore fundraise via the equity route, the telecom joint between UK’s Vodafone Plc and India’s Aditya Birla Group is looking to borrow another Rs 25,000 crore from banks and financial institutions and line up an extra Rs 10,000 crore via non-fund-based facilities.

Cash-strapped Vi plans to deploy a bulk of its targeted Rs 50,000-55,000 crore funding for capital expenditure over the next three years to boost 4G coverage, ramp up 4G capacity and kickstart greenfield 5G rollouts in key markets. This is vital for the telco’s survival and its ability to compete with bigger rivals, Reliance Jio and Bharti Airtel who have already rolled out pan-India 5G networks.

But given Vi’s stiff upcoming payment obligations, banks want clarity from the next government on the possible extent of equity conversions of the deferred portion of Vi’s regulatory dues, and whether these would be undertaken in tranches in FY25 and through FY26-27.

“The government can either extend the moratorium period, convert more debt into equity or reduce the instalment payment to help Vi. One thing is for sure, they cannot afford to let the telco go down because, with it, also goes the thousands of crore of government dues,” said another senior banker.

Last week, Vi chief executive Akshaya Moondra said the telco is exploring further conversions of its government dues into equity in FY26 and FY27, especially of the instalments that are convertible as per the telecom reforms package.
He had told ET in April that the government’s stake in Vi could rise back to around 32-33% — it fell to 23.8% now after the fundraising last month — if it decides to convert some of the telco’s principal dues into more equity.

Top brokerages that participated in Vi’s March quarter earnings call said the telco’s management was hopeful of substantial relief on its curative petition filed in the Supreme Court, based on its contention on the calculation methodology and errors by the telecom department in computing the AGR liability. But banks want to play safe and prefer waiting for the actual legal outcome before factoring in any potential reduction in Vi’s upcoming payment obligations to the government.

Legal circles expect the matter to come up for hearing after the Supreme Court’s summer break ends in early-July.

IIFL Securities estimates that a near 50% reduction in Vi’s AGR liability could reduce its upcoming annual payments by around Rs 6,500 crore after the current moratorium ends next year. Vi’s total AGR dues has mounted to Rs 70,320 crore in the quarter through March 2024, as per company data.