Debt-funding delay to slow down Vodafone Idea turnaround; govt relief likely: Analysts 

Vodafone Idea

Vodafone Idea, facing a delay in its Rs 25,000-crore debt-funding plan, is likely to get a relief from the government that can convert a substantial portion of its statutory dues into equity, analysts said. They, however, warned that this delay could slow down the telecom operator's financial recovery.

The company's management last week acknowledged the potential delay in securing debt funding following the Supreme Court’s rejection of its AGR (adjusted gross revenue) curative petition. This marks a shift from its earlier assurance of securing bank loans by the end of November.

Vodafone Idea stated that lenders have adopted a wait-and-watch approach on its debt-funding plans, pending the government's response to the unresolved dues. The company noted that discussions with lenders were progressing well until its curative AGR petition was dismissed, after which the lenders opted to hold off on their decision.

“The capex spend target of Rs 50,000-55,000 crore is quite critical for Vi as it currently lags behind Reliance Jio and Airtel on many network parameters such as the number of sites, percentage of 4G sites and 5G rollout which, in turn, impact its ability to maintain or gain subscriber market share as well as increase its ARPU,” Ashwinder Sethi, partner at Analysys Mason, told Moneycontrol. “The delay in debt funding is expected to impact Vi's ability to achieve financial recovery significantly.”

The Vi management reiterated that the telco and its promoters continue to engage with lenders for debt as part of its planned network expansion capex over the next three years. The capex will primarily focus on 4G coverage, capacity expansion, and 5G rollout.

An IIFL Securities note said raising the debt is critical for executing Vi's capex plan, and the AGR setback has resulted in some delay. A delayed or stalled debt would risk Vi's turnaround plan.

“Vi, today, is definitely in a better position than it was six months ago. However, the unfavourable Supreme Court verdict is a big setback for the company. Hereafter, a lot needs to fall in place for VIL to become an investible idea for us. Investor focus will now shift to VIL’s progress on key operational parameters—pace of subscriber loss, future tariff hike(s) and capex velocity—even as further developments on AGR dues will also be watched keenly,” analysts at Nuvama said in a separate note.

The analysts see a high probability that the government will convert a part of the dues into equity to provide relief to the telco.

Motilal Oswal said that Vi’s network investments and long-term sustainability are contingent on raising debt which, in turn, is dependent on securing bank guarantee waivers and continued support from the government.

Nomura Research noted that Vodafone Idea’s prospects depend heavily on securing the debt quickly, which is crucial to invest in its network and potentially resume modest subscriber growth.

Vodafone Idea separately said it hopes to meet any potential cash shortfall through another round of government debt-to-equity conversion.

"That was approved by the Cabinet in the past and has been publicly disclosed. I think it will be conversion will happen to the extent of a shortfall of payment. I mean whatever we can pay. And what is the requirement of payment," Vodafone Idea chief executive Akshaya Moondra said on November 14 during an earnings call.

After the moratorium ends in September 2025, Vodafone Idea must pay Rs 29,000 crore in March 2026 and Rs 43,000 crore in March 2027 towards immediate government liabilities.

Vodafone Idea has been actively seeking to remove the bank guarantee (BG) requirements for spectrum acquired before 2022.

The telco must secure BGs worth Rs 24,746 crore in the coming months. Its management said these BGs involve payment of nominal commission only. Still, the lenders are wary that these BGs would increase their exposure and can limit their ability to extend debt fundraising. Hence, the management said the waiver of the BG requirement would help the telco secure debt fundraising.

"Vi's management said the lenders are wary that these BGs would increase their exposure and can limit their ability to extend the targeted debt funding. Hence, the management has said the waiver of BG requirement would help the company secure debt fundraising to an extent," JM Financial said in a research note.