VIL promoters likely to instill equity
The promoters of Vodafone Idea – Vodafone and Aditya Birla Group – are likely to look for options in which they could strengthen the business and the competitiveness of the company rather than relying on the government to convert its contributions into equity in the company. at the end of the four-year moratorium on AGR and spectrum payments.
Sources said that promoters investing money in the form of equity capital in the business were also among the options being considered, although this could not be confirmed by either party. As is known, Vodafone Idea has tried to raise up to 25,000 crore from investors, but has so far failed.
Sources said that after the four-year cash flow relief provided by the government as well as some long-term policy measures that would reduce regulatory costs in the future, the promoters believe that funds should be injected into the business and that business strategies should be refined. “It is estimated that the back-up plan would be of no use if, at the end of the four-year period, the company transformed into a PSU with the government converting its contributions into equity.
State Bank of India Chairman Dinesh Kumar Khara told CNBC TV18 on Monday that if the promoters bring in the money in the form of equity, the bank may consider providing it with more debt.
The Aditya Birla group owns 27.66% of the capital of Vodafone Idea, while Vodafone holds around 44% of the capital.
Speaking to a group of reporters on September 16, Bharti Airtel chairman Sunil Bharti Mittal also said he spoke to Vodafone CEO Nick Read and convinced him to invest in the operations of his business in India since the government had taken an important step in favor of investors. He said he also told Read that the new reforms in the telecommunications sector open up several opportunities for the two companies to partner in infrastructure areas.
The telecommunications relief plan approved by the Union Cabinet on September 15, in addition to certain long-term policy measures, offers immediate cash flow relief to financially strained telecommunications operators by deferring the payment of their adjusted gross revenues. and their spectrum royalties for a period of four years. However, the contributions would be protected by the NPV (Net Present Value), which means that operators would have to pay interest on the amount.
The package provides that operators can pay their NPV contributions through equity and if at the end of the four-year period they are unable to pay their contributions, the government has the option of converting the principal amount into equity. clean.
In the case of Vodafone Idea, the annual amount of AGR and deferred spectrum is 23,000 crore. This means that the overall amount deferred for the four-year period is 92,000 crore.
In addition, the government has provided additional cash flow through which the company can fund its annual license fees and spectrum usage fees of around 4,000 crore at MCLR + 2% now without any penalties.
According to Jefferies, the government could own 26% of VIL at the end of a four-year period, if the company chooses to pay the cumulative interest of 9,000 crore over four years through equity, assuming the shares are issued at the current market price.
“These measures may allow Vodafone Idea (VIL) to continue operating, but lack of balance sheet or income statement relief may preclude any significant creation of share value. In addition, VIL could continue to lose subscribers as it remains behind Bharti and Jio on network capacities (4G / 5G) and service offerings (subsidized handsets, bundled packages, etc.). Our calculations suggest that VIL may require an Arpus of 300 to 500 at different subscriber base levels, to manage its liabilities even after converting the deferred amount into equity after a four-year moratorium, ”Kotak Institutional Equities wrote in its report.