AGR fallout: Vodafone Idea plans to raise Rs 25,000 crore

By: |
September 5, 2020 7:00 AM

However, to meet its capex needs and interest on non-spectrum liabilities, the company will also need to depend on a combination of tariff hikes, cut in opex and other cost-saving measures.

Vodafone Idea will get around Rs 6,870 crore from Vodafone Plc, which would be the latter's share towards merger liabilities (Vodafone and Idea had merged in August 2018).Vodafone Idea will get around Rs 6,870 crore from Vodafone Plc, which would be the latter’s share towards merger liabilities (Vodafone and Idea had merged in August 2018).

The board of Vodafone Idea (VIL) on Friday approved a fund-raising plan to the tune of Rs 25,000 crore through share sale and debt which indicates that the company, after FY22, would be able to meet its payment of adjusted gross revenue (AGR) dues’ instalments and that of deferred spectrum.

However, to meet its capex needs and interest on non-spectrum liabilities, the company will also need to depend on a combination of tariff hikes, cut in opex and other cost-saving measures. According to analysts, the bigger signal being sent out through this fundraising move is that the company has removed the uncertainties regarding its continuance in the market. Earlier, its promoters had said they are not going to put any more money into the company.

As reported earlier, the company needs to pay total outstanding AGR dues of Rs 50,250 crore, which would entail annual instalment of around Rs 7,000 crore, including interest from FY23 till 2031. Concurrent to this during this period it also needs to pay around Rs 16,000 crore as deferred spectrum instalment.

At the end of June quarter, the company hardly had cash on its books with its cash and cash equivalents at Rs 3,450 crore and a net debt of Rs 1.16 lakh crore.

Vodafone Idea will get around Rs 6,870 crore from Vodafone Plc, which would be the latter’s share towards merger liabilities (Vodafone and Idea had merged in August 2018).

In a filing to the stock exchanges after the board meeting on Friday, the company said its board has approved raising Rs 15,000 crore through issue of equity shares or securities convertible into equity shares, global depository receipts, American depository receipts, foreign currency convertible bonds, convertible debentures, warrants, composite issue of non-convertible debentures and warrants or a combination thereof by way of a public issue, preferential allotment, private placement, qualified institutions placement or through any other permissible mode in one or more tranches.

It has also approved issuance of unsecured and/or secured, non-convertible debentures up to an aggregate amount of Rs 15,000 crore, by way of public offering or private placement basis or otherwise, in one or more tranches.

“However, the total raising of funds shall not exceed Rs 25,000 crore,” the filing said.

The company will be seeking shareholders’ nod, wherever applicable, for the fund-raising plans in the annual general meeting (AGM) to be held on September 30, 2020.

Analysts at Kotak Institutional Equities have pointed out that VIL remains in a tricky situation even as the Supreme Court verdict has offered it a short-term cash flow relief. According to them, the company needs a combination of quick, sharp improvement in pricing, flawless delivery on the fresh opex cut targets, and competitive network spends to stem the trend of market share erosion and some equity infusion.

“Our analysis shows that despite Arpu recovery to Rs 170 (+49% from June 2020 levels) and being able to stem loss of subscribers to 270 million by FY23E (vs 280 million as of June-20), cash balance for VIL would be in precarious situation by end FY22E. Further, resumption of Rs 15,700 crore of deferred spectrum payments from FY23E would accentuate the cash flow strain for VIL,” analysts at Credit Suisse noted.

The company had posted one of its biggest losses during the April-June quarter at Rs 25,467 crore, largely due to provisioning for AGR dues. Operationally, VIL has continued to lose market share ― it lost 11.3 million subscribers during the June quarter to reach 279.8 million in total, including 1 million 4G subscribers, taking the number to 104.6 million and total data subscribers declined by 3.8 million to 135.7 million.

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