Vodafone Idea sees no impact of SC ruling on debt-funding, capex plans

Vodafone Idea

Vodafone Idea Ltd expects its debt-raising and capital expenditure plans to remain unaffected by the Supreme Court's rejection of its curative plea for re-computation of dues it owes to the government, as lenders had accounted for an adverse outcome in their recent techno-economic evaluation, company officials said, requesting anonymity.

However, analysts said that the apex court ruling could delay the telco’s debt-raising plans, hinder capex execution and lead to further market share losses.

Analysts pinned their hopes on a positive AGR ruling as a “potential wildcard”, which could have improved Vodafone Idea's finances and its ability to compete with rivals.

In the absence of an AGR relief, the telco could be staring at a financial crisis starting from the second half of financial year 2026 to the calendar year 2027. The time frame coincides with the company’s deadline to make its annual spectrum and AGR payments to the government, which are estimated to be up to $ 5 billion.

Vodafone Idea has raised $2.4 billion in equity and is raising an additional $4 billion in debt.

The telco, which has 200 million subscribers, has reached out to new lenders, including public sector non-banking financial companies (NBFCs).

Telco remains hopeful
A company source said, “The [SC] outcome does not impact our plan in any way. A positive outcome would have helped, but it won’t have any impact on our debt-fundraising and capex strategy.”

The telco has outlined a capex plan of up to Rs 55,000 crore over three years to be executed through debt fundraising and equity raises.

Vodafone Idea has earmarked a capex budget for 5G deployment and the expansion of 4G coverage in critical priority circles from the equity raise. The company claims to have sufficient funds from its recent capital raise to support its near-term capex needs.

Earlier this week on September 19, the apex court dismissed curative petitions of telecom operators — led by Vodafone Idea and Bharti Airtel — seeking correction of computational errors related to pending AGR dues.

A three-member SC bench, comprising Chief Justice of India D.Y. Chandrachud and Sanjiv Khanna, B.R. Gavai, dismissed the curation petitions.

The way forward

In a note, brokerage firm, Nomura, said that the AGR outcome was a material overhang on Vodafone Idea and there is an incremental visibility on the telco's way forward.

Despite its large debt burden but manageable with government support in the coming years, Vodafone Idea will be able to steadily repair and rebuild its business and partake in the robust outlook for the Indian telecom industry, which is underpinned by clarity on significant tariff hikes for the next two years and 5G monetisation, Nomura said.

"The reality doesn't change for Vodafone Idea. But the debt raise will become challenging, and that will, in turn, impact its capex plan, resulting in delayed market share stabilisation and customer loss. Now, market share gain will be a much tougher task," an analyst associated with a leading brokerage told Moneyconytrol.

The analyst said Vodafone Idea will require a capital infusion, primarily from its shareholders, unless the government extends the payment timeline.

“The government should review the matter and intervene…else,  there is a risk and Vodafone Idea could be struggling. Such a scenario will not be good for the telecom sector,” said Mahesh Uppal, director, Com First (India).

Uppal said the SC ruling will impact the teleco’s turnaround plan. “A positive outcome could have reduced the company’s burden," he added.

In a note dated September 19, Credit Lyonnais Securities Asia (CLSA), a capital markets and investment group that focuses on alternative investments, said all options may not be exhausted for the telco. It cited a similar petition filed by the company in January 2021 after the SC’s AGR verdict on the 16-year-old case.

Analysts at Macquarie, a global investment banking and financial services group, said though Vodafone Idea's tariff outlook has been improving, without AGR concessions, it would take at least up to 30 years at 15 per cent average revenue per user (ARPU) compound annual growth rate (CAGR) for the company to settle its outstanding dues. Hence, a further extension of the repayment deadline is required, it added.

“In our base case, we continue to see market-share erosion and meaningful equity dilution risk,” Macquarie analysts said in a note on September 19.

Based on a detailed self-assessment of AGR dues, Bharti Airtel paid $2.2 billion against the department of telecom’s (DoT) estimate of $5.3 billion. Similarly, Vodafone Idea had self-assessed AGR dues at $2.6 billion, against the DoT estimate of $7 billion. So far, the telco has paid $1 billion.

Vodafone-Idea's net debt was $28 billion till the first quarter of 2024-25, including an AGR liability of $8.5 billion, of which 20 per cent is principal, and the rest represents interest and penalties.

Earlier, in  September 2021, Vodafone Idea and Bharti Airtel had opted for a four-year moratorium on AGR and spectrum dues.