Vi's top lenders urge promoters to infuse more funds into telco

Key lenders of Vodafone Idea (Vi) want the company’s promoters to infuse more equity for the cash-strapped telco to qualify for future loans, saying the recent Rs 2,000-crore financial support offered is inadequate given its weak credit rating.

At a recent meeting with its core lenders, Vi made a pitch to raise more debt to fund its network expansion plans. But the banks led by State Bank of India (SBI) told the company that its promoters – the UK’s Vodafone Plc and India’s Aditya Birla Group – needed to push through a much bigger equity infusion to compensate for Vi’s lower credit rating and give lenders the confidence to approve larger loans, people aware of the discussions said.

“The Rs 2,000-crore offer is not enough… Vi’s promoters need to match the company's debt funding needs with higher equity infusion for the banks to step in,” one of them told ET.


But bankers are confident about Vi’s solvency as its current operating income levels are adequate to clear dues to lenders, the sources said.

In a late-evening written response to ET’s queries, Vi said that since the merger, the company had received fresh equity of about Rs 30,000 crore, of which Rs 23,000 crore has been infused by promoters.

“The promoters have further committed support of an additional Rs 2,000 crore over and above this amount… In the same period, the overall exposure of banks has reduced by Rs 50,000 crore,” a Vi spokesperson said.

The company is actively engaged with banks and investors for its funding requirements, the person added.

Vodafone Plc declined comment while queries to Aditya Birla Group and SBI remained unanswered till press time Tuesday.

Vi shares closed 0.9% lower at Rs 9.90 on the BSE.

Last month, Vi said one of its promoters was ready to offer direct/indirect financial support up to Rs 2,000 crore to meet any impending payment obligations. The promoter in question is widely believed to be Aditya Birla Group.

However, lenders felt this does not demonstrate adequate commitment from Vi’s promoters to convince lenders to take sizable fresh debt exposure. This, they said, is because the telco’s current loans, which are being drawn down, were given before the Vodafone-Idea merger when the erstwhile Vodafone India and Idea Cellular were rated AAA and AA+, respectively.

“Since the loss-making merged entity, Vi has been recently assigned a B+ rating for long-term bank facilities, any fresh funding can only be considered if the promoters bring in a higher quantum of equity capital,” one of them said.

Late last month, Care Ratings assigned a B+ credit rating for Vi’s long-term bank facilities and an A4 for its short-term bank facilities. B+ is a non-investment grade rating that implies an issuer is relatively risky with a higher-than-average chance of default. The A4 rating also signifies minimal safety on timely payment of financial obligations.

Latest feedback from Vi’s key lenders comes at a time when the telco is trying to raise a Rs 4,000-crore short-term loan from SBI to clear its pending statutory dues and a Rs 1,680 crore second instalment for 5G spectrum bought in last year’s auction. Vi, which opted for a 30-day grace period, needs to pay the 5G spectrum instalment later this month.

Vi has been struggling to raise funds needed to pay vendors and the government, expand its 4G coverage, and invest in its pending 5G rollout to compete effectively with bigger rivals Reliance Jio and Bharti Airtel.

Vi’s chief executive Akshaya Moondra told the Department of Telecommunications (DoT) last month that the company had made significant progress in its ongoing talks with several groups of investors to raise equity and equity-linked capital, and that it had term sheets from several potential investors. He said the external fundraise would set in motion a Rs 65,000 crore accelerated capex plan over four years to turn around the telco.

Vi had ended the first quarter of FY24 with Rs 2.11 lakh crore net debt and a modest cash balance of Rs 250 crore. Its dues to banks and financial institutions (FIs) stood at Rs 9,500 crore at June end, of which Rs 6,826.6 crore is payable by June 30, 2024.

The telco has been prioritising payment of dues to banks/FIs over vendor payments. Its dues to banks/FIs plunged over 37% in a year. Vi expects bank debt to fall below Rs 6,000 crore soon.

Vi’s vendor dues, though, remain high. Kotak Institutional Equities recently estimated the telco’s past dues to tower vendor Indus had surged to Rs 9,500 crore even though it has been paying monthly dues on time.