Fund infusion by Jan-Feb must for Vi survival

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Loss-making telco Vodafone Idea (Vi) could find it tough to make a financial recovery unless its promoters – UK’s Vodafone Plc and India’s Aditya Birla Group – make a fresh equity infusion by January-February, government officials said.

The concerns about the carrier have been made worse as government has had no indication of fresh promoter-level equity infusion into Vi, without which it is difficult to go ahead with the conversion into equity of the telco’s ₹16,130-crore accrued interest on deferred adjusted gross revenue (AGR)-related dues. If the conversion does not take place, it would become tougher for Vi to induce external investors or raise debt which the telco desperately needs for expanding its 4G network, rolling out 5G services and clearing its vendor dues.

Analysts said if the conversion happens the government shareholding will touch 33%, making it the single largest shareholder in Vi.

“If a fresh capital infusion from Vi’s promoters does not come by January-February, it will become difficult for the telco to survive,” a senior government official aware of the matter told ET. “The (equity) conversion can happen if the company shares a clear investment plan, including promoter fund infusion.”

Officials said Vi’s promoters had earlier assured the government that they would invest around Rs 10,000 crore. The assurance had come shortly before the government finalised a telecom sector revival package in September 2021. The package had a clause that gave telcos the option to defer their AGR-related dues by four years. The package also gave telcos the option to get the accrued interest on the deferred dues converted to government equity. In January, Vi opted for the deferral and conversion options.

Since then, Vi has received a little over Rs 4,900 crore from promoters, a bulk of which was used to clear some dues to tower company

. The government wants Vi’s promoters to inject more capital – even if it’s the balance of the Rs 10,000 crore assured – to give confidence about the company’s business prospects, which will trigger the equity conversion and fundraising via debt and equity.But the Vodafone Group has previously made it clear it won’t be infusing fresh equity into its India joint venture.

Its portion in the Rs 4,900-crore infusion came from the proceeds of a part sale of its stake in Indus.

With Nick Read set to step down as Vodafone Group CEO in the midst of a slump in the UK telco’s stock price, analysts said his replacement will further shy away from making any fresh investment into Vodafone Idea.

Vodafone Group had deconsolidated Vi from its books back in 2017.

In May, Vi reiterated its September 2020 announcement that it plans to raise Rs 20,000 crore via a mix of debt and equity. This hasn’t fructified yet. This fundraise is planned in addition to the promoter equity infusion received before May.

Vi and ABG did not respond to ET’s queries as of press time Sunday. Vodafone Group plc declined to offer comment.

Bankruptcy Fears

“Without more capital infusion from promoters, Vi won’t have any cash to grow its operations or meet its sizeable vendor dues and could be headed towards bankruptcy; in such a situation, a potential 33% government stake in Vi won’t have any value, which could be a possible reason behind the delay at the government’s end to do the conversion,” Rohan Dhamija, head (India & Middle East) at Analysys Mason, said.

Nitin Soni, senior director (corporates) at global ratings agency, Fitch, said the telco needs to raise over $3 billion in the next 6-12 months to meet short-term liquidity pressures, given that it needs to quickly clear sizeable dues to tower companies (Indus and ATC), and also invest in 4G/5G capex in the near term to stay competitive vs peers.

Vi had net debt of around Rs 2.2 lakh-crore in the second quarter.

In September, the telco prepaid a Rs 2,700-crore short-term loan to

in a bid to boost lenders’ confidence. The third largest telco by subscribers ended the September quarter with a gross cash balance of Rs 190 crore.

Goldman Sachs estimates Vi could be staring at a potential Rs 6,400 crore cash shortfall by September 2023, when a Rs 9,600 crore debt repayment is due.

ARPU Concerns

“Without any capital raise, Vi’s ARPU will have to rise by Rs 35 for the company to meet its immediate repayment needs by Sep ’23 (including capex, debt and interest expenses),” Goldman Sachs said. Vi’s average revenue per user (ARPU) – a key performance metric – was at Rs 131 in the September quarter.

Going forward, the brokerage estimates that Vi’s ARPU needs to rise 2.5 times to Rs 356 by FY27 for the company to be FCF (free cash flow) neutral when all AGR/spectrum repayment obligations resume.The telco has continued to lose revenue share in the second quarter of FY23 due to under-performance in key leadership circles. Goldman Sachs said Vi has lost about 19 percentage points of revenue market share over the last four years and believes it could lose more if its 5G rollout is unable to keep pace with peers, which could result in a sizable proportion of its high-end subscribers churning out.

The company’s net loss for the September quarter widened to Rs 7,595.5 crore sequentially from Rs 7,296 crore, dragged down by higher finance and operating costs, even as it lost 6 million subscribers, hurt by its inability to strengthen its 4G operation.

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