Indian operator Vodafone Idea’s money troubles show no signs of abating any time soon.
The Economic Times reported late last week that the telco has sounded out several banks about the possibility of an emergency loan totalling INR70 billion ($849.8 million) to help it pay back the money it owes to infrastructure provider Indus Towers, money it has pledged to return in full by September. However, Vodafone Idea (Vi) doesn’t appear to have got very far.
The problem is that the telco is struggling to manage the debt it already has, so why should banks add to that pile, and take on the risk of lending money they might never get back?
According to the report, Vi has asked lenders to factor into their calculations INR150 billion of bank guarantees that were returned to it by the government last year. These guarantees were required as a backstop to licence and spectrum fees payable to the state, but they were scaled back as part of 2021’s telecoms relief package. Vi argues that this puts it in a stronger position, and therefore it is a better credit risk.
However, there are apparently other significant hurdles to overcome.
As part of that aforementioned relief package, the government offered to convert interest on spectrum and licence fees owed to it by telcos into equity. Vi took up that option last January, paving the way for the government to own more than a third of the company. However, that conversion has yet to take place.
A separate ET report last week claimed that the government wants Vi’s parents, Vodafone and Indian conglomerate Aditya Birla Group, to inject more capital into the operator. So far they’ve reportedly pledged INR20-30 billion, but the government argues Vi needs INR400-450 billion to fund its 5G rollout, its 4G network expansion, and to generally keep the lights on, and that Voda and Aditya need to put up half of that. The government is allegedly also holding out for Vi’s share price to stabilise at INR12; however, it is currently trading at less than INR7.50.
Until these situations change, the government is unwilling to carry out the debt conversion. And until that happens, banks will be reluctant to lend to Vi.
These issues are being compounded by Vi’s travails in the mobile market. It is struggling to keep pace with leaders Reliance Jio and Bharti Airtel. According to the Telecom Regulatory Authority of India (TRAI)’s most recent stats, Vi lost 3.5 million subscribers in October, ending the month with 245.6 million in total. By comparison, first-placed Jio added 1.4 million for a total of 421.4 million, while number two player Airtel added more than 805,000 customers, giving it a total of 365 million.
A quick look at Vi’s P&L makes for grim reading too. In the quarter ended September 30th, EBITDA came in at INR41 billion. However, that was wiped out by depreciation and amortisation costs totalling INR57 billion, and interest and financing costs of INR60.3 billion. In all, Vi’s quarterly net loss widened to INR76 billion from INR71.5 billion a year earlier.
If Vi can’t break the deadlock over the government’s debt-to-equity conversion, and if it can’t secure the external sources of funding it so desperately needs, then its future as a going concern remains an open question.
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