A consortium of lenders, led by the State Bank of India (SBI), has given in-principle approval for a Rs 14,000-crore loan to Vodafone Idea (Vi). This loan is intended to support Vi’s efforts to turnaround its unprofitable operations, which includes launching 5G services. While an official communication is still awaited, the joint venture between Vodafone Group Plc and Birla’s conglomerate has received informal commitments from several lenders, including Punjab National Bank (PNB), Bank of Baroda, Union Bank, and other public and private sector banks. The consortium is expected to disburse funds in tranches once the transaction is closed.
Purpose of the Loan
The proceeds from the loan will be used for several purposes. Firstly, it will be used to repay operational creditors. Additionally, the funds will be utilized to roll out a 5G network and bid for additional spectrum. Vi is aggressively pursuing its larger objective of raising Rs 25,000 crore after a successful follow-on public offering (FPO).
Vi’s Efforts to Raise Funds
Vi has been actively raising funds to strengthen its financial position. The company recently completed an Rs 18,000-crore FPO, which was oversubscribed more than six times. Vi’s shareholders also approved an equity infusion of Rs 2,075 crore on a preferential basis from an Aditya Birla Group entity. In total, the promoter groups have infused Rs 7,000 crore between March 2022 and May 2024. These equity fundraisers, coupled with debt funding, will enable Vi to kickstart capital expenditure to expand its 4G coverage and launch 5G services.
Analysts’ Perspectives
While Vi believes that the funding will enable a smart turnaround and help seize industry growth opportunities, analysts remain cautious. They believe that the amount raised through the FPO is insufficient to have a significant impact on the industry dynamics and Vi’s debt position. Analysts at Bernstein also suggest that for Vi to become a sustainable telco, it might need multiple and significant tariff hikes to boost average revenue per user (ARPU) and meet its payment obligations to the government. JM Financial analysts also note that Vi may require partial relief from government dues, either through conversion to equity or further extension of the moratorium.
In conclusion, a consortium of lenders, led by SBI, has given in-principle approval for a Rs 14,000-crore loan to Vodafone Idea. The loan will support Vi’s efforts to turnaround its operations and launch 5G services. The funds will be used to repay operational creditors, roll out a 5G network, and bid for additional spectrum. Vi has been actively raising funds through an FPO and equity infusions, but analysts remain cautious about the telco’s financial position.