A tale of two loans: Banks queue up for BPCL, put Vodafone Idea on hold

One of the bankers said the primary concern was that Vodafone Idea was upgrading its 4G networks while its competitors had moved on to 5G.
One of the bankers said the primary concern was that Vodafone Idea was upgrading its 4G networks while its competitors had moved on to 5G.

Summary

The two giant corporations are looking to borrow a combined 55,000 crore, but the state-owned oil company’s prospects seem much brighter than the telco’s.

Mumbai: Two of the largest loan proposals in recent history, worth a combined 55,000 crore, have evoked disparate reactions from bankers. While lenders are salivating at Bharat Petroleum Corporation Ltd’s (BPCL’s) 32,000 crore loan proposal, they are circumspect on lending to Vodafone Idea, which is looking to raise 23,000 crore through loans to strengthen and expand its network. Combined, the two loans equate to about 2% of the outstanding loans to large industries.

Three bankers who have been involved in discussions with both firms said they were keen on lending to state-owned BPCL, given the strength of its balance sheet and strong sovereign backing. The company, they said, has appointed SBI Capital Markets (SBI Caps) as its transaction advisor for the 15-year loan deal. The public-sector undertaking (PSU) is looking to raise money for capital expenditure at its Bina Refinery and has set the minimum loan by an individual bank at 1,600 crore.

Also read: No gain for Vodafone Idea from parent's 18% stake sale in Indus Towers 

“The loan is expected to be benchmarked to State Bank of India’s three-month marginal cost of fund-based lending rate (MCLR), which is currently at 8.3%," said one of the bankers cited above. “Such loans are priced with a 5-10 bps margin over the benchmark, and individual banks will propose their rates to join the deal." A fourth banker, who is only involved in the discussions with BPCL, said all major banks were keen on lending to the PSU.

In May 2023, BPCL announced plans to spend 49,000 crore to increase its presence in petrochemicals and renewable energy. In a statement on 17 May 2023, the company said the core component of the expansion plan was its ethylene cracker project, which would drive the production of essential petrochemicals. It said it also planned to expand refinery capacity at the Bina Refinery in Madhya Pradesh from 7.8 million metric tonnes per annum (MMTPA) to 11 MMTPA.

Vodafone Idea's plan elicits caution

The same bankers, however, were circumspect on lending to Vodafone Idea. One of them said the primary concern was that Vodafone Idea was upgrading its 4G networks while its competitors had moved on to 5G. “The company plans to raise the loan in three months but I do not think anything will happen before six months. SBI will do a techno-economic viability (TEV) study and banks will decide based on the outcome," this banker added. A TEV study assesses the technical feasibility, market potential and financial viability of a project.

The bankers said senior executives at the telecom company, including chief executive Akshaya Moondra, recently gave them a presentation on its capex plans. The telco is looking to raise 23,000 crore through loans and another 10,000 crore through non-fund-based guarantees, they said.

Also read | Vodafone Idea to begin 5G services in six months: CEO Akshaya Moondra

“There was a meeting with Vodafone Idea in August 2023 as well, but we weren’t quite keen on [giving loans]. Given that the telco has now raised funds, we might look at it more positively this time round, but there are some concerns that we have raised," said one of the bankers. “We were keen to know what Vodafone Idea had to say. The mood at the meeting was one of caution mixed with openness to listen," another banker said. A third banker said their bank had neither accepted nor rejected the proposal.

On 16 May, Vodafone Idea said its recent equity raise of about 21,500 crore and planned debt funding would be used primarily for capex of 50,000-55,000 crore over three years. A day later, Moondra said on an earnings call that the funds would be spent on expanding 4G coverage, growing 4G capacity, and rolling out 5G.

Emails sent to Vodafone Idea, BPCL, SBI Caps and SBI remained unanswered.

Corporate credit needs a boost

Banks have been trying to boost corporate credit, which has been lagging other types of loans for several quarters. Bankers have said this is due to a dearth of large fresh capex projects and companies' reluctance to take on additional debt and instead use internal accruals.

Also read: India's private capex not secular across industries, says HSBC's Malhotra

The Reserve Bank of India (RBI) has been nudging companies to boost capex, taking the baton from the government, which had been pushing for this. Experts said private capex would support corporate credit growth in FY25.

Ajit Velonie, senior director at Crisil Ratings, said in a note on 28 May that steel, cement and pharmaceuticals would lead the capex recovery, while emerging sectors such as electronics and semiconductors, electric vehicles (EVs) and solar modules would also contribute to capex, especially over the medium term.

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