Vodafone Idea gets in-principle approval for Rs 14,000-crore loan from SBI-led consortium: Sources

Vodafone Idea gets in-principle approval for Rs 14,000 crore loan from SBI-led consortium.

A consortium of lenders, led by the State Bank of India (SBI), has given in-principle approval for a Rs 14,000-crore loan to Vodafone Idea (Vi), which is looking to turnaround its unprofitable operations through a series of measures, including launching 5G services.

While an official communication is still awaited, the joint venture between Vodafone Group Plc and Birla’s conglomerate has received informal commitments from several lenders, including Punjab National Bank (PNB), Bank of Baroda, Union Bank, and other public and private sector banks, sources aware of the development told Moneycontrol.

The consortium is expected to disburse funds in tranches once the transaction is closed. The proceeds will be used to repay operational creditors, roll out a 5G network, and bid for additional spectrum, sources said, adding the telco is aggressively pursuing its larger objective of raising Rs 25,000 crore after the successful FPO.

"We may advise that SBI or any consortium with SBI as the lead Bank has not accorded any approval whatsoever to the captioned Company," SBI said in an emailed statement.

Vi chief executive officer (CEO) Akshaya Moondra on May 17 revealed that banks wanted the telco to raise equity first before giving out loans to the telecom operator. The telco’s broad plan is to raise Rs 25,000 crore and additional non-fund-based facilities of up to Rs 10,000 crore.

"...we've been engaged with the banks for a long time, and it was their ask that first the equity raise should be completed, so we've done that. We have started engagement with the banks again…we have some capital available, and we'll be able to close the discussions with the banks in good time," Moondra said during an earnings call on May 17.

Vi has reduced its overall bank debt from the peak level of Rs 40,000 crore to around Rs 4,000 crore currently and the company has asked lenders to release funds commensurate with the equity infusion through its Rs 18,000 crore follow-on public offering (FPO) in April this year. The FPO was oversubscribed more than six times and drew investors such as GQG Partners and Citigroup Global Markets.

On May 8, Vi's shareholders approved an equity infusion of Rs 2,075 crore on a preferential basis, from an Aditya Birla Group (ABG) entity. This, coupled with the preferential equity raise of Rs 494 crore in 2022 from Vodafone Group and ABG takes the total fund infusion by both the promoter groups to Rs 7,000 crore between March 2022 and May 2024.

Vodafone Idea didn’t immediately respond to Moneycontrol's queries.

Vodafone Idea's recent equity fundraiser coupled with debt funding will enable it to kickstart capital expenditure to expand 4G coverage as well as launch 5G services.

While the telco claims that the funding will enable a smart turnaround to seize industry growth opportunities, analysts remain cautious, stating that the amount raised via the FPO is insufficient for the telco.

“The funding would enable VI to expand its 4G network, rollout 5G services & reduce the pace of the subscriber decline. However, we believe fundraise is not large enough to have a significant impact on the industry dynamics & VI’s debt position,” Bernstein analysts said in a note seen by Moneycontrol.

For the company to turnaround into a sustainable telco, it might need multiple and significant tariff hikes that can boost ARPU to Rs 320-360 by FY27, compared to ARPU of Rs 146 in 4QFY24) to meet the annual Rs 35,000-43,000 crore payment obligation to government of India (GoI) over FY27-31, analysts at JM Financial said in a separate note. The telco will also require partial relief from the government dues either via conversion to equity or further extension of the moratorium.

Despite a successful FPO and the telco’s plan to aggressively invest in 4G expansion and 5G rollout, analysts said that the Indian telecom market will consolidate further due to the struggling telco’s customer churn.