Brickwork downgrades Voda Idea's debentures to 'B' over fundraising delay

Rating agency Brickwork Ratings (BWR) has revised the rating for debentures of Vodafone Idea Ltd ( VIL) from "BB-" to "B" over continuous delay in raising funds impacting its liquidity and considerable deterioration in performance in Q1FY22.

The company's modification plea filed with the Supreme Court (SC) to allow corrections of computational errors in Adjusted Gross Revenue (AGR) has been rejected by the SC providing no relief to the company.

The outlook on Non-Convertible Debentures (NCDs) remains negative.

The rating agency in a statement said that while VIL has filed a review petition in this regard, the outcome is uncertain. VIL has substantial amounts of debt maturing in FY22 (including the NCDs). Rraising adequate funds in a timely manner is imperative for timely servicing of this debt.

Additionally, the company’s spectrum payments and the first tranche of AGR liabilities will also become due in the coming few months, making the availability of necessary funds all the more critical, it added.

The downgrade reflects a substantial decline in the company’s subscriber base. It lost 12.40 million subscribers during Q1FY22. Moreover, it's Average Revenue Per User (ARPU) further fell to Rs 104 in Q1FY22 from Rs 107 in

Q4FY21.

The 4G subscriber base of the company, which was increasing QoQ till Q4FY21, also witnessed a decline in Q1FY22 indicating the increased amount of stress on the company.

The EBITDA has shown improvement over the past few quarters due to realisation of synergy benefits and cost cutting measures adopted by the company. But, it continues to remain lesser than financial costs.

VIL has also been urging the government to set up floor tariffs for the sector to improve its viability but no concrete development has taken place in this regard, Brickwork said.

The company has been vocal about the need for a tariff hike but has not been able to take any major action in this regard due to the high competitive intensity in the sector.

VIL has increased the prices for some of the plans, however, a meaningful impact will only come once the prices are increased across all plans and categories.

VIL, along with other telecom service operators, has been engaging with the government for a long time for a relief package to improve the viability of the sector. However, no official confirmation or announcement has been made by the government in this regard till now.

On fund raising, VIL has said that it was in active discussions with few investors and is hopeful of completing the fund raising exercise before major payments become due.

The rating agency said it will continue to monitor the developments on fund raising and company’s performance on an

ongoing basis. And will take appropriate rating actions as and when warranted.