Will delay in Govt equity affect Voda's 5G plans?

The delay in the government taking decision to convert its debt into equity in Vodafone Idea is likely to affect the financially-stressed telecom service provider's plans to participate in 5G auctions, which start on July 26. Vodafone Idea wanted to complete ₹20,000 crore fundraising from the lenders and new investors before the commencement of the auctions. But the lenders and investors are quite apprehensive about financing the company before the government notifies the conversion of ₹16,133 crore interest into equity.

Vodafone Idea has already raised ₹4,500 crore from the promoters — Vodafone Group and the Aditya Birla Group. It will raise additional ₹436.21 crore from its UK parent by issuing fresh shares/warrants at ₹10.20 a unit. Vodafone Group had sold 7.1% stake in Indus Towers and raised around ₹3,831 crore to invest in Vodafone Idea.

The government will get 35.8% stake in the company post the conversion, while the stake of promoters will get diluted to around 50% from the current 75%. "But the delay from the government's side in accepting the Vodafone Idea proposal will mount pressure on telco, especially in finalising its game plan for 5G auctions," said an executive from the industry. Vodafone Idea did not respond to the email.

The telco has a plan to raise ₹10,000 crore as equity investment and another ₹10,000 crore as debt. The management has been in discussions with a consortium of banks as well as external investors since last year.

In January, the telecom operator informed that it had opted for converting the interest on the spectrum and adjusted gross revenue (AGR) dues into government equity. The government has already said that it will not be a promoter in the company and its holding will be treated as "public shareholding". It will not participate in the management and will not hold board position.

Vodafone Idea has a total debt of ₹1.98 lakh crore. About 90% of it is owed to the government. While going for bidding cost-heavy 5G spectrum, the telco has other worries like flattish subscriber growth and high cost, compared to its rivals Reliance Jio and Bharti Airtel.

The three operators are expected to acquire spectrum worth ₹71,000 crore in the 5G auction, research firm IIFL Securities said in a report. But this amount is far lower as the government wants to auction about ₹4.3 lakh crore worth of airwaves capable of offering fifth-generation services, including ultra-high-speed internet. "We estimate spectrum outlay of ₹37,500 crore, ₹25,000 crore and ₹8,500 crore for Jio, Bharti and Vodafone Idea," IIFL said.

Vodafone Idea Ltd. (VIL) — the unified telecom entity formed in August 2018 between Vodafone Group Plc and Kumar Mangalam Birla's Idea Cellular Ltd — has had a despairing journey and recorded a cumulative loss of around ₹1.33 lakh crore between FY19 and FY21. In the 2021 Fortune 500 listing of India's largest companies, Vodafone Idea notched the highest losses at ₹44,233 crore. It has had a string of problems over the years, starting with the retrospective taxation case over the 2007 acquisition of a controlling stake in Hutchison Essar's Indian assets internationally, the verdict over the repayment of adjusted gross revenue (AGR) dues and the slow roll-out of 4G services.

It's only after the government announced a raft of measures in September 2021 aimed primarily at keeping beleaguered telecom service providers afloat, that the storm seems to have calmed. The biggest measure was a four-year moratorium on AGR dues from October 2021 to September 2025. But the recovery of Vodafone Idea is still slow because of the capital shortage.