Vodafone Idea’s post-FPO priority: Clearing vendor dues

Vodafone Idea chief executive Akshaya Moondra
Vodafone Idea chief executive Akshaya Moondra


  • The telecom company owes 10,000 crore to vendors, including its tower providers and network equipment providers
  • Overall, the telco is burdened with 2.1 trillion in debt, including about 1.3 trillion due to the government

NEW DELHI : New Delhi: Vodafone Idea, the only one among India’s top 3 telecom carriers without a 5G service, has multiple demands on the 45,000 crore it's raising in equity and debt. But its immediate priority: clearing the dues it owes its vendors.

The telecom company, which on Monday began roadshows for its 18,000 crore follow-on public offer of shares, owes 10,000 crore to vendors, including to its tower and network equipment providers. Overall, it is burdened with a 2.1 trillion debt, including more than 1.3 trillion for spectrum and another 65,000 crore as part of a revenue-sharing mechanism that it owes to the government. 

The debt is payable over the years, up to 2040-41, but the moratorium on payments owed for the spectrum ends in the first half of FY26.

“The idea is first to pay the vendor dues over a period of time," said managing director and chief executive Akshaya Moondra in an interaction with Mint

The company will ascertain its levels of cash inflation and its ability to pay government dues when the moratorium ends, and will accordingly seek government support, he said. “This will not be every year but in the initial couple of years the possibility could be high," Moondra said, adding that the support could be in the form of a waiver or deferment.

Vodafone Idea generates about 8,500 crore a year in cash, and its debt owed to banks had reduced to 4,500 crore at the end of February, allowing it the runway needed for clearing vendor dues, Moondra said.

He added that the carrier was in discussions for bank debt of 25,000 crore, which will be a facility that can be drawn on over a period of time and primarily be used towards capital expenditure for growth.  

The cash-strapped telco will use 12,750 crore for network expansion till FY26, of which 5,720 crore will be for setting up 22,000 5G sites and the rest for 26,000 new 4G sites, upgrading existing 4G sites, and for other general corporate purposes.  

Moondra said upgrading existing 4G sites will be key to arresting the fall in subscribers, and that the lack of 5G services “had not made any material difference" in customer churn.

The telco plans to roll out 5G services in six-nine months, focusing on geographies that contribute about 40% of its revenue. The carrier remains the only private company to not have 5G services on offer, unlike Airtel and Reliance Jio. 

Vodafone Idea has raised about 5,400 crore from anchor investors including GQG Partners, Fidelity Investments, UBS Fund Management, Jupiter Fund Management, Australian Super, besides domestic investors India Infoline, Motilal Oswal, HDFC Mutual Fund, SBI General Insurance, and Quant.  

In a statement to the stock exchanges on Wednesday, the company said it had finalised the allocation of 4.9 billion shares to anchor investors at 11 apiece. US-based GQG Partners has been allocated the highest number of shares, worth 1,345 crore, while Fidelity Investments has invested about 772 crore in the FPO. 

Post the FPO and a preferential allotment of shares worth 2075 crore to promoters, promoter shareholding will be about 38%, government shareholding at 24%, and the remaining 38% will be public shareholding. 

Asked about the bloated equity capital of about 66,000 crore after the FPO, Moondra said further stake dilution was “not bad" since the company’s balance sheet was leveraged and needed to be corrected, either through cash-generation or through direct equity, which was a faster way. 

Moondra added that the company does not plan to rope in a strategic investor, and that promoters could put in further equity after the moratorium period ends in FY26, when the government will have the option of converting the dues owed to it into equity or consider deferring it.  

“Government conversion is an option that could come from the promoter if they believe that is the right thing to do. Also, there is a possibility that the government may not want to increase equity and defer it," Moondra said. 

Government shareholding can rise to 35% if it decides to convert the dues to equity.   

On Wednesday, IIFL Securities upgraded its stock rating on Vodafone Idea to ‘Add’ with a target price of 14 per share. The company ended Tuesday’s trading on NSE down nearly 2% at 12.90 per share. The stock exchanges were closed on Wednesday.

Balaji Subramanian, vice president at IIFL Securities, said that equity infusion followed by debt-raising should enable the company to narrow the 4G coverage and capacity gap with its peers. 

“This would not only arrest subscriber losses but also enable faster upgrade of 2G users to 4G. Direct tariff hikes, coupled with this upgrade, should drive Vi’s (average revenue per user) from 145 in 3QFY24 to 241 in FY27," he said.

“We recommend Vi for long-term considering their capacity expansion strategy, which gives potential for ARPU expansion," said analysts at Canara Bank Securities, also noting that the company was diversifying into the technology sector by offering mobility services such as vehicle tracking and internet-of-things solutions.

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