Vodafone Idea to raise Rs 25,000 crore to reduce debt

The board of the country’s largest telecom operator by subscribers but financially the weakest, Vodafone Idea on Wednesday approved the proposal to raise up to `25,000 crore, a major portion of which will come from the promoters, Vodafone Plc and the Aditya Birla Group.

According to the company’s filing with stock exchanges, the funds will be raised through a rights issue and the infusion is expected to happen by March. “The company’s board has authorised the capital raising committee to decide the terms and conditions of the rights issue, including the instrument, issue price, rights entitlement ratio, record date, timing of the rights issue and other related matters,” the company said in its filing.

As on Wednesday, Vodafone Idea’s market capitalisation stood at `29,481 crore.

The fund raising move, which was first indicated by the company when it announced its September quarter earnings, comes at a time when Vodafone Idea needs to pare its high net debt of `1.13 lakh crore. Though the company did not say in the filing where the funds will be used, analysts maintain it will be for debt reduction.

Of the `25,000-crore, bulk of `18,250 crore will be contributed by the promoters — `11,000 crore by the Vodafone group and `7,250 crore by the AV Birla group.

The balance will be raised from the public but if the issue is under subscribed, the promoters would subscribe the amount either in part or full.

AV Birla group’s listed firms, Grasim Industries and Hindalco Industries, hold stakes in Vodafone Idea. While Grasim holds around 11.6%, Hindalco has 2.6% stake.

This is the second time that the promoters are infusing fund in the company. Earlier this year, promoters of Vodafone and Idea Cellular had infused around Rs 14,140 crore in their respective companies for the merger between the two to go through.

Analysts have noted in the past that despite the fund raise by Vodafone Idea, synergies through the merger and their stake sale in Indus, the company’s debt to Ebitda ratio could be a high 19 times in FY20. Peer Bharti Airtel’s net-debt-to-Ebitda at the end of the September quarter was 4.65 times.

“We expect Vodafone Idea to be number three player by early FY20 and continue losing market share over next two years. Consequently, our FY19-21 Ebitda falls 34-13%,”analysts at Jefferies have noted.

Similarly, analysts at JP Morgan had said that Idea does not appear to be in a position to fund even basic capex, given the burdensome leverage. “Even if the entire Rs 25,000 crore is used to service debt, the company will be left with a debt of Rs 92,000 crore, taking into account interest cost, by the end of the current financial year, they had noted.

Analysts at Kotak Institutional Equities (KIE) have estimated a funding gap of Rs 38,000 crore, should Vodafone Idea spend a cumulative Rs 50,000 crore on capex by 2020-22 and incur a cash interest cost of Rs 31,000 crore.

Apart from the equity infusion of Rs 25,000 crore, the stake sale of 11% in Indus Towers should bring another Rs 5,000 crore which together with the monetisation of the fibre, which is also on radar, the company would just about be enough to meet estimated funding gap between 2HFY19-FY2022.

Around 79% of Vodafone Idea’s net debt of Rs 1.13 lakh crore, is spectrum-related and owe to the department of telecommunications. The company needs to fork out about half the telecom industry’s annual deferred spectrum payments, between now and 2031. For instance, nearly half of Rs 10,579 crore of the Rs 21,218 crore which the industry needs to pay the DoT in 2018-19, is Vodafone Idea’s share. In comparison, Bharti Airtel’s annual outgo will be Rs 5,573 crore.

This is the reason that the company has sought from the government a two-year moratorium for paying spectrum dues. The merged entity of Vodafone Idea started operations from September 1. It posted a massive consolidated net loss of Rs 4,974 crore for the three months of July-September 2018.