Vodafone Idea board agrees to raise Rs 25,000 cr through share sale, debt

Kumar Mangalam Birla Chairman, Vodafone Idea
Vodafone Idea on Friday decided to raise up to Rs 25,000 crore by way of share sale and debt from new investors even as its UK parent has planned to stay aloof.

A spokesperson for Vodafone plc said: “Our position has not changed.

Vodafone Group does not intend to put any equity into Vodafone Idea.

Vodafone Idea is owned by Vodafone plc and the Aditya Birla group (ABG).

In a meeting here, the board of directors of the company decided to raise the funds via equity share sale of up to Rs 15,000 crore and another tranche of up to Rs 15,000 crore via a public offer or private placement of non-convertible debentures. However, the total will not exceed Rs 25,000 crore, the company said in a statement to the stock exchanges.

Both the proposals will be taken up at the annual general meeting, scheduled for September 30.

The company’s promoters are in talks with US-based investors. Nothing concrete has emerged, said sources.

Telecom analysts said the additional funds would help the company tide over its immediate crisis because both Vodafone plc and the ABG had refused to infuse additional money into the loss-making venture.

“It’s a temporary reprieve for the company,” said an analyst with an Indian brokerage.

Vodafone Idea’s Ebitda (earnings before interest, depreciation, tax, and amortisation) of Rs 4,100 crore in the June quarter of FY21 was not enough to pay for its capex, interest, deferred spectrum, and the adjusted gross revenue (AGR) dues, all of which amount to over Rs 30,000 crore annually.

This includes AGR dues of Rs 7,500 crore annually.

It will, however, have some leeway in FY21 and FY22, when, thanks to the moratorium on paying for deferred spectrum (offered by the government), its normal payouts would be lower (deferred spectrum is Rs 14,000 crore per annum).

But Vodafone Idea has to pay more annually after the two years.

Based on the first-quarter FY21 numbers, nearly 45 per cent of Vodafone Idea’s Ebitda would be used to pay just its AGR dues.

And Goldman Sachs estimates its Ebitda needs to go up 4.9x over Q1 FY21 and its average revenue per user (ARPU) by over by 88 per cent (its ARPU in the June quarter was Rs 123) for it to be able to just make its annual outflows.

However, with its debt at 10 times its Ebitda on an annualised basis, it has had no choice but to raise money through equity.

It will get around Rs 4,000 crore by selling its stake in Indus Towers to Bharti Airtel. However, monetising fibre assets may not earn for it a large amount of cash.

Also the company will need to up its capital investment so that it can bridge the gap it has with its rivals in upgrading its 2G network to 4G. However, the company’s capex in the past 12 months has been down by 25 per cent year on year and lower by 50 per cent over that of Bharti Airtel.
“The additional debt will increase the financing cost for the company. So it will require more funds,” the analyst said.

Fund raisingcomes at a time when the company is fighting Reliance Jio and Bharti Airtel toretain its market share.

The company was hit hard by the Supreme Court ruling in October last year, when it was asked to pay Rs 58,254 crore of AGR dues to the government. However, on Tuesday, the court gave 10 years to all the telecom companies to pay their past dues. Vodafone Idea has paid Rs 7,854 crores as AGR to the Department of Telecommunications.

The share price of Vodafone Idea had reacted positively since the court’s latest order but on Friday it closed 4.3 per cent lower at Rs 12 a share – giving it a market valuation of Rs 34,511 crore.

In the first quarter of the financial year, Vodafone Idea’s quarterly loss increased to Rs 25,460 crore as compared to Rs 11,643 crore reported in the March quarter of FY20.

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