If a strategic investor wants to take control of Vodafone Idea Ltd (VIL), Vodafone Group Plc and Aditya Birla Group may transfer control, according to 2 people familiar with the internal negotiations.
This development represents a shift in thinking on the part of Vodafone Idea’s promoters, who had been looking for financial investors but had been unsuccessful in raising the necessary funds, putting the telco’s survival in jeopardy, according to the people cited above, who asked to remain anonymous.
“The initial plan was to get an investor in and, alongside, the two promoters would have invested some more equity, but that plan has not worked out so far,” said one of the two people cited above.
According to the persons, the two promoter groups are in talks with at least five strategic and financial investors, including three US-based entities, to sell a combination of Vodafone Idea shares and convertibles to generate funding for the cash-strapped telco and satisfy government and bank dues.
Vodafone Idea’s parent business in the United Kingdom controls 45%, while the Indian promoter group, which includes Kumar Mangalam Birla and Aditya Birla Group companies, owns 26%. “The two promoter groups are open to the option of doing away with a majority stake or transfer control,” said the first person, adding that this option will be considered only if the foreign entities agree to pay a premium to the prevailing market price of Vodafone Idea so that the company gets enough funding to take care of the telco’s ballooning dues.
Vodafone Idea’s current market value is ₹24,000 crore, and if an equity deal of $2 billion (₹15,000 crore) happens at the current stock price, the promoter holding will get diluted by 62.5%, which means Vodafone Group’s holding will come down to around 28% and Aditya Birla group’s holding will be lowered to around 16.25%.
Vodafone Idea’s stock hit the lower circuit twice on Friday after the Supreme Court dismissed the telco’s plea to allow payment of self-assessed AGR dues that are way lower than the one demanded by the Department of Telecommunications (DoT). The shares fell 10% to ₹8.36 on BSE.
The telco desperately needs to raise capital to deal with its liabilities of ₹1.8 trillion. The government has demanded ₹58,254 crores as AGR dues from Vodafone idea, while the company has self-assessed this at ₹21,533 crores. Vodafone has so far paid only ₹7,854 crores.
The Supreme Court’s Friday decision may make it difficult for Vodafone Idea to raise funds, as potential investors can no longer anticipate the carrier to earn enough cash to pay its debts in the near future.
Vodafone Idea’s request to be allowed to pay recalculated AGR dues was denied by the Supreme Court on Friday. “In such a scenario, the best option is to sell equity shares and raise money for the telco,” said the first person.
With massive government dues, low tariffs, and average revenue per user below the intended level, they will find it difficult to persuade investors to participate in the company through any means other than shares. The government has approved Vodafone Idea’s request to raise $15,000 crore through foreign direct investment.
According to Mint, Vodafone Idea plans to sell its $1 billion worth of fiber and data-center assets to pay off its debts. According to the source, TPG Capital, Apollo
Global and Carlyle Group are among the private equity titans in early conversations with Vodafone Idea on this topic.
Last year, Vodafone announced plans to raise 25,000 crores through the sale of shares and debt securities. The telco is still bleeding as a result of the present low-tariff environment, which began four years ago after Reliance Jio Infocomm’s arrival sparked a price war.
Vodafone recently stated that it will be unable to pay the telecom department the installment of Rs 8,292 crore due on April 9, 2022, because the company’s cash will be required to settle AGR dues. Vodafone requested a year to pay the spectrum installment in a letter to the telecom secretary dated June 25.
For the quarter ended March, the company reported a consolidated loss of roughly Rs 7,023 crore. In FY20, Vodafone Idea reported a loss of Rs 11,643.5 crore. Between December 2021 and April 2022, Vodafone Idea must pay lenders and the government a total of Rs 22,500 crore.
