MC EXCLUSIVE Vodafone Idea in talks with private credit funds as bank funding remains elusive

The company has been engaging with lenders to secure debt financing to support its broader capex plans of Rs 50,000–55,000 crore.

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26 Aug, 2025 12:21

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Vodafone Idea (Vi), staring at a possible cash crunch by the March 2026 quarter, is in early discussions with private credit funds including Davidson Kempner, Oaktree and Värde Partners to raise a small tranche of debt, sources told Moneycontrol.

According to its internal estimates, the struggling telco may run out of funds to sustain its capex programme by the fourth quarter of the current financial year if bank financing does not materialise. Despite several rounds of engagement, lenders have so far refrained from extending fresh loans to the cash-strapped telco, multiple sources confirmed.

The company has been engaging with lenders to secure debt financing to support its broader capex plans of Rs 50,000–55,000 crore.

To avoid any disruption in its 4G and 5G network expansion — critical to reducing customer churn — the telco is looking to secure funding by November this year.

The private credit route is being explored as a stopgap measure while larger bank funding remains uncertain, according to the sources cited.

In a parallel move, KPMG has submitted a revised Techno-Economic Viability (TEV) report to help Vi access Rs 25,000 crore in bank debt, sources said. The report was filed in the last week of July.

However, bankers remain hesitant for two key reasons, according to the sources cited.

First, there is no clarity on the adjusted gross revenue (AGR) dues, and until the government formally defers the repayment schedule, lenders are likely to stay on the sidelines.

Second, questions remain over the “waterfall” repayment mechanism, specifically, whether government dues will take precedence over bank loans now that the Centre is the majority shareholder.

Lenders have sought explicit comfort from the government on this point before proceeding, sources added. Queries sent to Vodafone Idea remained unanswered.

Notably, Vodafone Idea’s board on May 30 this year approved raising another Rs 20,000 crore through a further public offering (FPO), private placement, or other permissible mode to stay afloat.

The decision came just weeks after the telco told the Supreme Court that it would be unable to operate beyond the current fiscal year without bank financing, funding that has so far remained out of reach as lenders remain cautious over its Rs 84,000 crore in adjusted gross revenue (AGR) dues. The apex court dismissed the plea.

Before moving the court, Vodafone Idea had approached the government with a request to waive interest, penalties, and interest on penalties linked to its AGR liabilities, but the proposal did not find favour.

Four-Year AGR Moratorium ends in September

The challenge is set to intensify in September, when the government’s four-year moratorium on AGR and spectrum payments ends. From March 31, 2026, the company will have to shell out more than Rs 18,000 crore annually for six years towards these dues. In FY26 alone, it faces payments of Rs 16,428 crore for AGR and Rs 2,539 crore for deferred spectrum obligations.

The company has said that some of these figures could change, depending on the outcome of pending representations and litigation. Final amounts will be confirmed by December 31, 2025, and then paid in six equal instalments starting March 2026.

As of the end of March, Vodafone Idea owed the government a total of Rs 1,94,000 crore, including Rs 1,18,000 crore in deferred spectrum payments and Rs 75,945 crore in AGR dues.

In its FY25 annual report, the board noted that the company’s ability to meet these liabilities depends on securing further relief from the Department of Telecommunications on the AGR issue, successfully raising equity and debt, and improving operational cash flows. “Based on the current efforts, the company believes that it would be able to get DoT support, successfully arrange funding and generate cash flow from operations,” the report said.

Uncertainty over the Government’s stand

Analysts noted that Indus Towers’ recent decision to suspend its dividend underscores the lack of progress in Vodafone Idea’s engagement with the government.  Without intervention on the AGR issue, many believe Vodafone Idea’s survival is in jeopardy, and parts of the industry are already preparing for a market without the operator.

"The uncertainty has spooked more than just tower companies. Bankers remain jittery, and even rating agencies have flagged concerns. The absence of clarity on AGR dues is a major sticking point. While regulatory engagement between Vodafone Idea and the government continues, but its outcome remains uncertain. Adding to the complexity, banks are grappling with their own challenges, including rising stress in the unsecured segment and sluggish credit growth. This makes them even more reluctant to extend fresh funding to Vodafone Idea," said Vivekanand S, an analyst at Ambit Capital Research.

According to him, the government is the only player capable of resolving the impasse. Vodafone Idea has consistently emphasised the urgent need for new capital expenditure (capex) to improve its network and stem subscriber losses, but in the absence of policy support, the logjam persists.