Vodafone, Birla to infuse equity in Vodafone Idea

Promoters of Vodafone Idea (VIL)—British telecom giant Vodafone Group Plc and Aditya Birla Group—are likely to infuse fresh equity capital in the company, reciprocating to government's reform package that largely intended to revive their financially troubled Indian telecom entity. According to sources close to the development, the external fundraising has become hassle-free with the government's reform package. "The company needs to revive the investor confidence first and lift the market valuation before going for any external equity capital," says an executive close to the development.

"The government's package was announced just a day back. We are still figuring out what we can do. The decisions relating to equity capital will be taken only at the board level," says a source close to the development. It is not known yet how much would be the capital infusion from the promoters.

The capital infusion from the promoters will boost the investor confidence and enhance the market value of the company. In 2019, Aditya Birla Group and Vodafone Group had infused ₹17,920 crore in VIL as part of the ₹25,000 crore rights issue.

About the capital infusion, VIL said it would not want to comment at this point of time. Earlier VIL had been in talks with U.S. private equity giant Apollo Global Management to secure over ₹22,000 crore—through a mix of debt and equity—to meet its adjusted gross revenue (AGR) and spectrum dues payment obligations. But funding failed to materialise as there was no clarity on the survival of the entity.

An executive with one of the promoter companies says that it is one big opportunity that they don't want to miss. "Telcos are now testing and readying the 5G network and instruments to build a new business ecosystem. VIL now has the advantage that it can redeploy the cash it generated from the business," he adds.

The cabinet approved reform package comprises a slew of measures of which the most important is the four-year moratorium on AGR dues. The government has also rationalised AGR by excluding non-telecom revenue from it. VIL has AGR dues of nearly ₹59,000 crore and Bharti Airtel has about ₹44,000 crore. Additionally, VIL owes over ₹23,000 crore to the banks and ₹94,000 crore to the government on spectrum charges.

As the crisis mounted, six weeks ago, Kumar Mangalam Birla resigned from VIL as chairman. Birla had expressed his willingness to offer his group’s 27% stake in VIL to any government or domestic financial entity in order to keep the stressed telecom company alive. Vodafone Group Plc said it would not infuse any equity in the joint venture. The company had been staring at insolvency until the government announced the relief support.

According to the government, this reform is aimed at protecting the net present value (NPV) of the due amounts. This is a “revenue neutral" measure, said Telecom Minister Ashwini Vaishnaw after the cabinet meeting. Telecom companies availing of this benefit have to pay periodical interests for the deferment. They will also have the option to convert the interest amount into equity to the government.

The reports on government looking to convert up to 70% stake in VIL have been rubbished by some of the officials. "What will the government do with VIL stake? The government is clear that it doesn't want to steer another telecom company. So it came up with a reform package," says a government official.