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Mumbai: UK’s Vodafone Group Plc and its local partner Aditya Birla Group plan to tap private equity (PE) and pension funds to raise as much as $1 billion once they pump in $2.5 billion through a rights issue into Vodafone Idea Ltd, according to three people aware of the talks. “There has been an initial round of talks with some potential investors" one of the three people said on condition of anonymity. “Some of the investors have said that they wish to see the overall leverage of Vodafone Idea come down significantly before committing to a potential investment."

“However there is interest among several large investors, who feel that India’s telecom industry which has witnessed a bitter tariff war with the entry of Reliance Jio (Infocomm Ltd) may be heading for a truce," the person said.

Vodafone Idea’s net debt stood at 1.2 trillion as of September, and—according to industry experts—the company urgently needs to shore up its equity base and spend on upgrading its telecom network to retain its position as the country’s largest telecom operator.

The net debt of rival Bharti Airtel stood at 1.15 trillion at the same period.

“Vodafone group plans raise the entire $1.5 billion (the UK company’s share in the capital infusion) by pledging its stake in Indus Towers Ltd, which is in the midst of a merger with Bharti Infratel Ltd," the second person cited above said, also requesting anonymity.

Vodafone Group owns 42% stake in Indus Towers, which according to estimates is valued at close to $2.7 billion according to latest estimates, significantly lower than its peak valuation of $5 billion earlier this year. Vodafone Group stake in Indus Towers was not part of the Vodafone-Idea merger, although Idea has transferred its stake to the merged entity which currently owns 11.15% in Indus Towers.

“The fundraise will be an off balance sheet transaction in which the entire debt will be raised through a special purpose vehicle based in a tax-friendly jurisdiction," the third person said on condition of anonymity. “The debt will be structured in a way that will allow the lenders only limited recourse to its parent but they will have access to cash flows from Indus Towers to Vodafone Group from its shares."

Emails sent to Vodafone Group and Aditya Birla group did not elicit a response, while a spokesperson of Vodafone Idea declined to comment.

“Alongside, the Aditya Birla group too has begun talks with lenders to raise $1 billion, which will be infused into Vodafone Idea," said the second person.

“The structure of the (Vodafone Idea) fundraise is being discussed and it is possible that debt will be raised at the level of overseas entities including the group’s Thailand-based companies," the second person added.

In November, Vodafone Idea announced plans to invest 27,000 crore in 2019-20, supported by savings of around 14,000 crore that it expects to come from synergising operations of the merged entity. The company said that it is looking to raise funds by issuing fresh shares. In addition, Vodafone Idea has said that the sale of 11.15% stake in Indus Towers can realise 5,000 crore, which it will use to pare debt.

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