Oaktree, Varde offer Vi $2 bn2 min read . Updated: 20 Nov 2020, 06:24 AM IST
- The consortium, led by Oaktree, is said to have offered $2-$2.5 billion to the telecom operator
A consortium of investors comprising Oaktree Capital Management and Varde Partners has proposed investing at least $2 billion in cash-strapped Vodafone Idea Ltd (Vi) by buying hybrid debt securities, two people familiar with the matter said.
The consortium, led by Oaktree, is said to have offered $2-$2.5 billion to the telecom operator that owes more than ₹50,000 crore to the department of telecommunications in back fees.
Vodafone Idea’s financial position deteriorated sharply after India’s top court ordered it to pay billions of dollars in dues to the government in October last year.
The apex court, however, amended its order in September to allow the affected telcos to pay the dues over 10 years, giving the operator a breather.
Still, raising funds to upgrade its network and pay the government is critical for the company’s survival.
Spokespeople for Vodafone Idea, Oaktree and Varde Partners declined to comment.
In September, Vodafone Idea said it plans to raise ₹25,000 crore by selling bonds and shares.
The fundraising process is, however, still in its initial stage. The telco plans to raise $2.5 billion by selling convertible bonds, and an equal amount by selling shares to institutional investors.
It is working with InCred Capital to structure the fundraising plan.
Investors in the convertible bonds of Vodafone Idea will have the option to convert 25% of the amount into equity at a premium to the stock price on the date of the conversion.
The bonds will earn the investors a fixed interest income every year and a return of the principal amount along with a premium on the date of maturity.
The $2.5 billion to be raised by selling convertible bonds will be used primarily to pay government dues and meet working capital requirements.
Once the average revenue per user (Arpu) and cash flows improve after a tariff hike, the borrowings will be gradually paid off.
The company has already hinted at another round of tariff hike, with chief executive Ravinder Takkar saying that the telco will not shy away from taking the lead in raising prices.
The telco aims to raise its Arpu to ₹200 initially and ₹300 eventually.
The chances of bringing in an equity investor will improve once the company can boost its operating income, which at the current level is not enough to cover the finance costs on its total debt of more than ₹1.2 trillion.
Vodafone Idea has also been in talks with other investors to raise funds amid mounting losses and shrinking revenues.
Mint had in September reported Amazon.com Inc. and Verizon Communications, the largest wireless carrier in the US, were to resume talks to buy a significant stake in Vodafone Idea for more than $4 billion.
The dialogue between Vodafone Idea and investors was paused as the telco first wanted clarity from the Supreme Court on staggered payment of adjusted gross revenue (AGR) dues, that could have threatened the survival of the company.
The Supreme Court’s latest order directed telcos to make an upfront payment of 10% of the total dues by 31 March and clear the remaining debt in 10 annual instalments starting April 2021.
Vodafone Idea has already paid ₹7,854 crore in adjusted gross revenue dues.
Shares of Vodafone Idea rose 0.8% to ₹9.27 on Thursday, while the benchmark Sensex fell more than 1% to close at 43,599.96 points.
The stock rose as much as 4.4% earlier in the day.