Vodafone Idea's ₹35,000-crore debt plan is facing scrutiny, with lenders prevailing upon the company to scale back its financial projections, while also demanding a corporate guarantee from another Aditya Birla Group firm, according to two people aware of the development. The demands underscore banks' insistence on stronger safeguards before extending one of the sector's biggest loans.
The people in the know said the earlier business projections made by the company were too optimistic and have thus been tempered to “manageable levels”. Typically, companies submit cashflow and other business projections as part of their borrowing requests.
Bankers are still discussing the loan proposal, and no concrete decision has yet been taken, said the people cited earlier.
This fresh debt will allow Vodafone Idea (Vi) to execute its much-awaited ₹45,000 crore capital expenditure to upgrade its network infrastructure.
“The corporate guarantee (from an Aditya Birla Group group peer) is necessary for this loan. It is a large bet that banks will have to take on the telco,” said one of the two people cited earlier. Issued by a parent or a strong group company, a corporate guarantee acts like a backstop and protects lenders in the case of a default.
Promoters the Aditya Birla Group and Vodafone Plc own total 25.6% in Vodafone Idea, with Aditya Birla Group holding 9.57% end March. The government owns a 49% stake in the company.
According to a third person in the know, State Bank of India’s (SBI) investment banking subsidiary SBI Capital Markets is working on the proposal that includes ₹10,000 crore in non-funded debt as well.
Emailed queries on the development sent to Vodafone Idea, SBI and SBI Caps on Friday remained unanswered.
In the quarter ended March, Vodafone Idea managed to stabilize its subscriber base at 192.8 million when compared with the previous quarter, and also improved its average revenue per user (Arpu) to ₹174 a month from ₹172 in the December quarter on consumer upgrades. The company had lost 5.4 million users as of March end from 198.2 million a year ago.
Rival Reliance Jio reported Arpu of ₹214 a month at the end of March, while Airtel posted ₹257, both largely flat sequentially. As of March end, Jio had 524.4 million users, while Airtel had 482.4 million users in India.
Mint had reported in February that lenders to Vodafone Idea are examining its spectrum dues, subscriber losses and weak user revenue before deciding on its request for a fresh loan.
Vodafone Idea chief executive Abhijit Kishore had then—in a post-earnings call in May—said the company was “deeply engaged (with banks)... It's an SBI (State Bank of India)-led consortium, which is looking into it, which forms part of the PSU (public sector undertaking) banks, the private banks, as well as the foreign banks and we are very confident of closing that very fast.”
Kishore did not give any timeline for closing the debt round. The timeline of debt fundraise is crucial as besides a ₹45,000-crore network expansion plan, Vodafone Idea has to pay ₹49,000 crore towards spectrum dues over the next three years, which would take its cumulative outgo to nearly ₹1 trillion.
The amount also includes a ₹5,000-6,000 crore interest on the bank debt once the company is able to arrange that.
In May, the telecom operator gave an ambitious financial roadmap to generate and secure over ₹1.08 trillion in cash over the next three years. This after the government lowered its adjusted gross revenue (AGR) dues by ₹23,600 crore to ₹64,046 crore after recalculation, deferring bulk of its payments by 10 years, to be paid from FY36 to FY41.
During the earnings call in May, the company told analysts that its funding would be boosted by tripled earnings before interest, taxes, depreciation, and amortization (Ebitda) to ₹60,000 crore during FY27-FY29, raising ₹35,000 crore through bank debt and a rolling line of credit facility, as well as securing ₹10,000 crore from the recent settlement with Vodafone Plc and expected income tax refunds.
Some analysts have turned bullish on the company’s prospects. However, some still believe it is still not out of the woods owing to strong competition and spectrum debt, notwithstanding relief from the government and stabilization of its user base.
In May, Crisil Ratings had assigned A- rating to the ₹35,000-crore proposed bank facilities of Vodafone Idea. Icra also upgraded its existing term loans by two notches to A- in June. Icra said the rating upgrade is driven by a change in the rating approach for Vodafone Idea, wherein the entity’s rating factors in support from the Aditya Birla Group. The company has bank debt of ₹726 crore, Icra said.
This, it said, has further strengthened with the re‑appointment of Kumar Mangalam Birla as the non-executive chairman of the board and with the proposed equity infusion of around ₹4,730 crore through a preferential allotment of warrants to a promoter group entity in May 2026.
On the other hand, in a note dated 18 May, analysts at Macquarie said “there is no quick fix to Vi’s (Vodafone Idea’s) underlying fundamental challenges”. Brokerage house IIFL Capital, also in an 18 May note, said the promoter infusion is unlikely to provide cash flow relief but it improves Vodafone Idea's debt-raising prospects. Analysts had, however, expressed concern over its huge spectrum debt of ₹1.27 trillion as of March end, which would require a timely fundraise.