VIL promoters likely to infuse equity

Sources said that promoters putting in money by way of equity in the company is also among the options which are being considered, though this could not be confirmed by either of the parties.

The promoters of Vodafone Idea — Vodafone and Aditya Birla Group — are likely to look for options wherein they could strengthen the company’s business and competitiveness rather than bank on the government converting its dues into equity in the company at the end of the four year moratorium on AGR and spectrum payments.

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Sources said that promoters putting in money by way of equity in the company is also among the options which are being considered, though this could not be confirmed by either of the parties. As is known, Vodafone Idea has been trying to raise up to `25,000 crore from investors but has not been successful so far.

Sources said that after the four year cash flow relief provided by the government along with some long-term policy measures which would bring down the regulatory costs going ahead, the promoters feel that funds should be pumped into the company and business strategies sharpened. “It is felt that the relief package would be of no purpose if at the end of the four year period the company turns into a PSU with the government converting its dues into equity.

On Monday, State Bank of India chairman, Dinesh Kumar Khara told CNBC TV18 that if the promoters bring in money by way of equity the bank could look at providing more debt to it.

The Aditya Birla Group has a 27.66% stake in Vodafone Idea, while Vodafone holds around 44% stake.
Speaking to a group of journalists on September 16, Bharti Airtel chairman Sunil Bharti Mittal also said that he spoke to Vodafone CEO, Nick Read and convinced him to invest in his company’s India operations since the government had taken a major investor-friendly step. He said that he also told Read that the new reforms in the telecom sector open several opportunities for the two firms to partner in the areas of infrastructure.

The telecom relief package approved by the Union Cabinet on September 15, apart from some long-term policy measures, provides immediate cash flow relief to financially stretched telecom operators by way of deferring the payment of their adjusted gross revenue and spectrum dues for a period of four years. However, the dues would be NPV (net present value) protected, which means operators would have to pay interest on the amount.

In the case of Vodafone Idea, the annual AGR and spectrum deferred amount comes to `23,000 crore.

The package provides that the operators can pay their NPV dues by way of equity and if at the end of the four year period they are unable to pay their dues, the government has the option of converting the principal amount into equity.

In the case of Vodafone Idea, the annual AGR and spectrum deferred amount comes to `23,000 crore. This means that the overall deferred amount for the four year period comes to `92,000 crore.

Further, the government has provided additional funding headroom by way of which the company can fund its annual licence fee and spectrum usage charges of around `4,000 crore at MCLR + 2% now without any penalty.

According to Jefferies, the government could own 26% of VIL at the end of four year period, if the company chooses to pay the cumulative interest of `9,000 crore over four years through equity, assuming shares are issued at current market price.

“These measures may allow Vodafone Idea (VIL) to continue as a going concern but absence of relief on balance sheet or P&L may rule out any meaningful equity value creation. Moreover, VIL may continue to lose subscribers as it remains behind Bharti and Jio on network capabilities (4G/5G) and service offerings (subsidised handsets, bundled plans, etc). Our calculations suggest that VIL may require Arpus of `300-500 at different levels of subscriber base, to manage its liabilities even after converting deferred amount to equity post four years of moratorium,” Kotak Institutional Equities wrote in its report.