In search of funding, Vodafone Idea dials KKR and Temasek Holdings

Fundraising discussions are currently in early stages

Vodafone Idea (VIL) has started preliminary talks with leading global private equity investors, including Singapore-based Temasek Holdings and US-based KKR, to raise money through equity and debt.

This comes close on the heels of the Union government (in the first week of February) approving the conversion of the telco’s dues linked to interest related to spectrum auction instalments and adjusted gross revenue of Rs 16,133 crore into 33.14 per cent equity -- a decision that was long-awaited and provided the cash-strapped company a lifeline.

A senior government official said VIL is looking at raising funds and talking to many global private equity funds which include Temasek and KKR “It requires fund infusion and that is what VIL is now focusing on,” he added.

While talks are in the early stages, people aware of the development said that there is no guarantee whether a deal will eventually fructify. Most PE funds approached were awaiting the government’s decision to convert part of its dues into equity.

A VIL spokesperson, asked about the discussions, refused to comment. A KKR spokesperson said: “We decline to comment on speculation.” A Temasek spokesperson at the Singapore headquarters said that as a policy, the investment company does not comment on speculation.

According to many investors, VIL is an attractive buy at current valuations (its market capitalisation is Rs 33,600 crore) and the company, despite all the problems, still has a substantial subscriber base, even after attrition. They also expect the government to provide the company with more relief on dues.

The government’s decision to execute the conversion comes nearly 13 months after the VIL board cleared the interest conversion. But the delay was because the government put in a pre-condition that the conversion can only happen after it brings in an investor or investors and promoters pitch in, too.

VIL earlier stated that it would require raising another Rs 20,000 crore to get the company back on the rails. After a lot of to and fro, one of the promoters, the Kumarmangalam Birla group (the other is Vodafone plc), made a commitment to the government that it would take the responsibility of managing the company and commit necessary investments to take VIL forward. Communications Minister Ashwani Vaishnaw said the funds would come either from the Birlas or with their partners.

VIL has some serious challenges: It has gross debt of Rs 2.2 trillion; it has a net debt-to-Ebitda ratio of 21x. The need for capitalisation is urgent especially due to its upcoming debt repayment commitment of Rs 9,600 crore (by this September).

Apart from expanding its 4G network, it will also need capital to make a calibrated roll-out of 5G and has been in talks with vendors for the same. 

The bulk of its debt is to the government and that includes Rs 1.4 trillion in deferred spectrum charge obligations and Rs 69,000 crore in adjusted gross revenue liability. Debt from banks and financial institutions makes up for Rs 15,000 crore. And it also has dues to clear of its vendors, including tower company Indus Towers and telecom gear providers Ericsson and Nokia.