Both promoters will invest around $200 mn each to retain their stakes at the current level once Voda Idea raises funds from external investors
Vodafone Idea’s gross liabilities, including regulatory dues, stood at around ₹1.9 tn as of 31 Mar
UK’s Vodafone Group Plc and Aditya Birla Group are likely to invest as much as $400 million in fresh equity in Vodafone Idea Ltd to strengthen the struggling telecom operator, two people directly aware of the internal discussions said.
Both promoters will invest around $200 million each to retain their stakes at the current level once Vodafone Idea raises funds from external investors, the people said, requesting anonymity.
The decision of Vodafone Idea’s parents to infuse fresh capital, after earlier ruling out such a possibility, comes after the government announced a rescue package, including a four-year payment holiday on regulatory dues, to help prevent any further deterioration in the financial health of telecom operators.
“Kumar Mangalam Birla is expected to invest the amount via unlisted promoter entities, and none of the group’s listed companies will invest," said one of the two people.
Aditya Birla Group owns a 27% stake in Vodafone Idea through Grasim Industries, Hindalco Industries, Birla TMT holdings and other group companies. Vodafone Group owns 44% of the Indian unit. Both the promoter groups had earlier categorically ruled out any fresh investments, citing adverse regulatory and business environments.
Email queries sent to Aditya Birla Group and Vodafone Group on Tuesday remained unanswered.
On 4 September, the board of Vodafone Idea approved a proposal to raise as much as ₹25,000 crore from outside investors. Over the past year, the telecom operator has held talks with several strategic and financial investors to raise funds through a mix of equity and hybrid debt. However, the negotiations stalled over the question of its survival, given annual regulatory dues of ₹25,000 crore over the next decade. However, in a major relief to the company, on 16 September, the government announced a four-year moratorium on regulatory dues, permitted 100% foreign direct investment in telecom through the automatic route, and redefined adjusted gross revenue (AGR).
Mint had reported on 23 September that Vodafone Idea was reviewing the terms of its planned fundraising post the moratorium and was likely to drop a plan to monetize assets. “The size of the fundraising could be smaller than what was decided earlier, but potential investors are keen that the promoters, too, put fresh equity in the company to demonstrate their commitment to the business," said the second person cited above. “The company may not raise around $2 billion investment from promoters and external investors," the second person added. “The $400 million infusion plan is critical at this juncture as the company desperately needs funds to carry on its daily business and fund its growth strategy, which involves significant capital expenditure in expanding its 4G network and fresh investments in 5G infrastructure and spectrum auctions.
Analysts said Vodafone Idea’s viability has improved following the relief package by the government. Vodafone Idea’s current market value is ₹31,000 crore. Still, the company has to repay ₹9,000 crore of loans to banks before the end of this fiscal, including ₹5,000 crore of non-convertible debentures.
Vodafone Idea’s gross liabilities, including regulatory dues, stood at around ₹1.9 trillion as of 31 March. The company owes ₹48,000 crore to eight banks, led by State Bank of India. Of this, borrowings amount to ₹23,000 crore, and the rest is in the form of bank guarantees. Bankers estimate the annual debt repayment of Vodafone Idea to be around ₹6,000 crore over the next two years. Moreover, after the four-year moratorium ends, payments to lenders and the government are also set to increase sharply. Vodafone Idea’s annual dues repayment after the four-year payments holiday will increase from ₹24,800 crore currently to ₹43,000 crore, while dues to the government will likely grow from ₹1.6 trillion as of FY21 to ₹2.2 trillion, according to a 16 September Nomura note to clients.