Vodafone Idea's Rs 2,000-cr pref share to clear Indus dues, boost debt-funding talks: Analysts

Vodafone Idea

Vodafone Idea’s plan to raise Rs 2,000 crore through equity shares or convertible securities on a preferential basis to Vodafone Group Plc will allow the telco to clear its outstanding dues to Indus Towers and likely boost its debt-funding discussions with lenders, analysts said.

British telecom operator Vodafone Plc completed its exit from Indus Towers on December 5 by selling a 3 percent stake for Rs 2,802 crore in a block deal. The proceeds will first be used to repay its lenders an outstanding of $101 million, and the remaining $233 million will partly clear Vodafone Idea’s past dues of Rs 3,600 crore through equity infusion into the Indian telco.

Vodafone Idea has informed the stock exchanges that on December 9, it will consider a proposal to raise up to Rs 2,000 crore through a preferential equity issue to one of its promoter entities.

In March 2022, Vodafone Plc sold a 4.7 percent stake in Indus Towers to Bharti Airtel, using the proceeds for equity infusion into Vodafone Idea to repay its past dues to the tower company. Analysts anticipate a similar move this time, too, though clarity on the share issuance price — whether at the current market price (CMP) or at face value — is awaited.

“As per the arrangement, Vodafone Plc will infuse the remaining $233 million into Vodafone Idea through a capital raise. We will have to wait for clarity on the price at which the shares will be issued. At CMP, it would give Vodafone Group a 3.2 percent stake in Vi, while at Rs 10 face value, it would give a 2.7 percent stake,” JP Morgan said.

“We think the clearing of Indus Towers' past dues could result in a special dividend of Rs 7.5 a share,” JP Morgan said in a note on December 5. “We believe the better prospects from Vodafone Idea in terms of their capex and tower/tenancies rollout plans is positive for Indus Towers and should drive low double-digit revenue/Ebitda growth over FY25-27.”

Vodafone Group and the Aditya Birla Group hold 22.56 percent and 14.76 percent stakes in Vi.

Axis Capital separately said Vodafone Idea had reduced its outstanding dues from a peak of Rs 5,800 crore to Rs 3,500 crore, with the last two-quarter payments remaining between Rs 800 and 1,000 crore.

Since January 2023, Vodafone Idea has been paying Indus 100 percent of its monthly billing and periodically repaying the older dues.

“The repayment of Rs 11 billion in the September 2024 quarter implied 25 percent of VIL’s EBITDA, which we believe can be sustained for the next three quarters. Our base case assumed that VIL will utilise its internal accruals, generated from the recent tariff hikes and network strengthening, to pay off the residual Indus dues in the coming three quarters. The Vodafone fundraise would likely accelerate the repayment to 1-2 quarters,” Axis Capital said.

Repaying the outstanding dues to Indus Towers was part of the security package agreed upon during the Indus-Infratel merger, it pointed out.

As per the security package agreed upon during the merger of Bharti Infratel and Indus Towers, Vodafone Plc’s 3 percent stake in Indus Towers is primarily pledged by its lenders against the $1.4-billion loan Vodafone had taken in 2019 to participate in the Vodafone Idea rights issue. Hence, the first use of the proceeds of $334 million would be to repay Vodafone Plc’s lenders' outstanding of $101 million.

Indus Towers has a secondary pledge on this stake with a maximum liability of Rs 4,250 crore. Hence, after repaying the lenders, JP Morgan said that Vodafone will use the remaining $233 million to partly clear Vodafone Idea's past dues of Rs 3,600 crore.

Analysts see the fundraising as a positive step, aiding Vodafone Idea’s plans for Rs 35,000 crore in debt funding. Lenders had adopted a cautious approach after the Supreme Court rejected the telco’s AGR dues recalculation plea. However, the recent government move to waive bank guarantees for spectrum purchases until 2022 has eased some pressure on the sector.

“Whenever Vodafone Idea engages with lenders, they will highlight Rs 2,000 crore funds as an equity raise. It doesn't matter whether the funds stay with the company or not, but it is an equity fund raise… When lenders, as well as institutions evaluate companies, even look at capital raise today,” Vivekanand S, an analyst at Ambit Capital Research, told Moneycontrol.

He noted that Vodafone Idea’s total fundraise of Rs 26,000 crore this fiscal signals accelerated progress. "While the debate is on whether Vi will get bank funding or not sooner, the sequence of events shows the latest development is definitely a step in the right direction."

He added that the timely conclusion of Vodafone Plc’s stake sale further underscores the momentum in resolving Vodafone Idea’s financial challenges.