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Vodafone Idea’s fundraising prospects hinged on new government’s arrival

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In Short:

Vodafone Idea’s fundraising put on hold till new government provides clarity on conversion of statutory dues into equity. Vi aims to raise up to Rs 35,000 crore through debt and facilities. Lenders seek clarity on equity conversions and outcome of Supreme Court plea. Company faces cash shortfall and repayment obligations. Plans to deploy funds for 4G and 5G expansion. Government support crucial for survival.

In a recent update, it has been reported that Vodafone Idea’s fundraising plans are expected to be put on hold until a new government takes charge after the elections. This delay is due to the need for clarity on the conversion of more statutory dues of the company into equity. The telecom operator, in which the government is the largest shareholder after the initial dues-to-equity conversion, intends to raise up to Rs 35,000 crore through debt and other facilities, following a successful share sale of over Rs 20,000 crore last month.

Lenders Seek Clarity

Lenders of Vi are seeking clarity on future equity conversions by the government and the outcome of the telco’s curative plea in the Supreme Court regarding its arrears based on adjusted gross revenue. These factors will determine the company’s regulatory payment obligations once the moratorium ends next year.

Banks are planning to conduct a techno-economic viability study to evaluate Vi’s financial status before considering additional loan exposure to the company.

A senior bank official mentioned, “Banks will need to assess Vi’s business plans and its strategy for managing government dues post-election results.”

Vodafone Idea and its promoters did not respond to requests for comments. The company’s shares closed 0.5% lower at Rs 13.50 on the BSE Wednesday.

Financial Position of Vi

Vi’s government liabilities stood at over Rs 2 lakh crore as of March 2024, primarily related to spectrum payments and AGR dues. However, its debt from banks and financial institutions decreased from Rs 7,140 crore to Rs 4,040 crore in the previous quarter.

According to Kotak Institutional Equities, Vi faces around Rs 3,500 crore of upcoming dues by March 2025 with long-term revival requiring government support. The company is looking to raise funds to boost 4G coverage, capacity, and initiate greenfield 5G rollouts to stay competitive.

Government Clarity Needed

Banks are awaiting clarity from the government regarding the extent of equity conversions of Vi’s deferred regulatory dues and whether these can be undertaken in tranches in the upcoming years. The next government’s decisions will play a crucial role in Vi’s financial stability and future obligations.

CEO Akshaya Moondra stated that the company is exploring further conversions of government dues into equity in FY26 and FY27, especially through the telecom reforms package.

Legal Proceedings Awaited

Legal circles anticipate a hearing on Vi’s curative petition in the Supreme Court post the summer break in early July. Analysts estimate a significant reduction in Vi’s AGR liability could alleviate upcoming annual payments by around Rs 6,500 crore after the moratorium ends next year.

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