The firm plans to raise funds through sales of shares and NCDs
Analysts believe that Vodafone Idea will need to more than double its Arpu to meet AGR payment obligations
Vodafone Idea Ltd on Friday said it will raise as much as ₹25,000 crore as the company seeks to pay off dues and restore its financial health after last year’s adverse Supreme Court order threatened its survival.
The company’s board has approved the fundraising just days after the top court allowed telcos, including Vodafone Idea, 10 years to settle about ₹1.4 trillion in dues to the telecom department. Out of this, Voda Idea owes the government more than ₹58,000 crore.
The fundraising will be through the sale of shares and non-convertible debentures, the company said in an exchange filing. Both routes of fundraising have a limit of ₹15,000 crore each.
Analysts said Vodafone Idea needs fresh equity, higher tariffs and concession in government levies to continue operations, besides paying the annual instalment of the adjusted gross revenue-related dues that include spectrum usage charges, license fee, interest, penalty and interest on the penalty.
“While the amount may seem lower than expectations, the fundraising process is likely to be gradual. This amount approved by the board does not seem to limit any private equity player from seeking a Vodafone Idea stake in the future," a senior telecom analyst said, requesting anonymity.
Mint reported on 3 September, citing two people aware of the negotiations, that Amazon.com Inc. and Verizon Communications are set to resume talks to buy a significant stake in debt-ridden Vodafone Idea. The stake-sale talks were paused because the court was then considering whether to allow telcos to pay dues in a staggered fashion.
On Tuesday, the Supreme Court granted telcos 10 years for payment of AGR dues. The court ordered an upfront payment of 10% on the total dues by 31 March. The remaining have to be paid in 10 equal instalments at an interest rate of 8%.
Vodafone Idea needs at least ₹70,000 crore, which is three times its market capitalization, to reach a manageable liquidity position, said analysts at Deutsche Bank Research. “After that, however, it would appear to offer value over its peers. We doubt that investors have such appetite and that a partial recapitalization is more likely," the analysts said.
“From FY23, Vodafone Idea will need to resume ₹15,500 crore auctioned spectrum deferred instalments. This including annual AGR payment of ₹8,000 crore, capex of over ₹5,000 crore (to maintain telecom market share) and bank interest would total over ₹30,000 crore, which is significantly higher than operating cash flows at current Arpu," IIFL Securities said in a report.
Analysts believe that Vodafone Idea will need to more than double its average revenue per user (Arpu) to meet its AGR payment obligations. Vodafone’s Arpu fell to ₹114 in the June quarter from ₹121 in the fourth quarter of fiscal year 2020.
Shares of Vodafone Idea fell over 4% to close at ₹12.01 on Friday, while the benchmark Sensex settled over 600 points, or 1.6%, lower amid global sell-off.
The apex court’s verdict, however, favours rival Bharti Airtel Ltd, which has fully provided for the AGR dues estimated at ₹43,980 crore.
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