How Vodafone Idea's Fundraise May Not Be The Antidote For Its Troubles

Vodafone Idea Ltd.'s fundraise plans remain far from being an antidote to its debt issues, even if it manages to raise the full Rs 20,000 crore through equity.

With a gross debt of over Rs 2 lakh crore, the company’s debt is likely to balloon even further, as it looks to raise up to Rs 25,000 crore in debt. Of this Rs 2 lakh crore, or 90%, is payable to the government.

The cash-strapped telecom company has asked domestic lenders to provide a no objection certificate to bring in new investors, as part of the proposed fundraise, according to an NDTV Profit exclusive on Thursday.

The company had earlier approved a fundraise of Rs 45,000 crore via equity and debt. Of the total amount approved, Rs 20,000 crore will be via equity or equity-linked instruments.

While the company plans to use these towards vendor payment, launch of 5G services and further capex, its debt payments will be at least Rs 30,000 crore (this excludes the new debt it plans to take) from FY26 after the moratorium on AGR dues is lifted.

Vodafone Idea’s revenue for nine months of FY24 stood at Rs 31,981.2 crore and was at Rs 42,133.2 crore in FY23. Its net loss for nine months of FY24 was at Rs 23,563.8 crore. It was Rs 29,297.6 crore in FY23.

Telecom companies like Bharti Airtel Ltd. and Vodafone Idea are looking to raise tariffs in the current year, while Reliance Jio Infocomm Ltd. remains elusive of its plans.

Analysts are factoring in a 15-20% hike after the general elections, which will provide a boost to revenues of Vodafone Idea. Even with a tariff hike of 15%, its operational profitability is likely to get boosted by only 10-15%.

However, this may be reduced even further as they plan to add more capex, increasing the depreciation expenses and even finance cost amid plans to raise debt from banks.

While the beleaguered telecom company needs to raise tariffs the most, it's not in a position to take the lead. The telecom services provider has lost nearly 6.2 crore wireless subscribers since January 2021.

Even as fundraise remains crucial for the company’s operational viability, it will not be of much help to service its debt.

The management continues to have conversations with the government for deferment of dues beyond FY26, according to people aware of the matter who spoke with NDTV Profit.

Apart from deferment of dues, the government may look to convert a portion of debt into equity. It is already the largest shareholder in the company, with a stake of nearly 33%.

However, this would mean further equity dilution following the fundraise of Rs 20,000 crore. Equity dilution on preferential allotment to promoters for infusing Rs 2,075 crore is likely to be nearly 3%, according to calculations by NDTV Profit.

While the company may have secured commitments of nearly $1 billion (Rs 8,400 crore), how much of this will materialise is yet to be seen.