No fresh equity to be infused in cash-strapped Voda Idea: Vodafone

Vodafone plc has made it clear that it will not make any fresh equity infusion in its Indian telecom business--Vodafone Idea Ltd (VIL). Responding to a query, a spokesperson at the UK-headquartered telco said: “Just to confirm our position, there will be no new equity infusion from Vodafone Group.”

This is the first time that Vodafone has spoken about its stand after the government announced a telecom package last week. The Cabinet approval of the telecom package had triggered speculation that the two key shareholders in VIL may invest in the company once again. While Vodafone plc has a shareholding of 44.39 per cent, Aditya Birla group has a 27 per cent stake in VIL. Institutional holders have around 5.59 per cent stake.

Competition too has been engaged in discussion with Vodafone Idea, advising the company to invest. Bharti Airtel chairman Sunil Mittal had recently said during a press conference that he had reached out to Vodafone plc CEO Nik Read asking him to invest more in the company to stay in the game. Mittal had said: “They need to contribute their own monies in the company”.

Vodafone plc had written off the book value of its shareholding in VIL in November 2019 and the company maintained it would not make fresh investments. AV Birla group chairman Kumar Mangalam Birla had, in a communication with the government, a few weeks ago, offered to give up his stake to the government to revive the company.

The AV Birla group has not commented on whether it would review its call of not putting any more money in the company.   

The telecom package is expected to reduce its cash flow for the next four years of the moratorium by around Rs 1.1 trillion. However, it has to pay both the interest as well as the adjusted gross revenue (AGR) and spectrum dues after the moratorium.

Analysts estimate that the company would require a cash infusion of over $10 billion in the next four years if it wants to stay in the game. That includes buying 5G spectrum and upgrading the network.

The government has agreed to a conversion of the dues to equity, in case the company fails to pay up. The government can hold anything between 30 per cent (if only the interest is converted ) and 70 per cent stake (if interest with the principal is converted) in the company at a price of Rs 10 per share. Analysts have raised concern about the prospects of VIL becoming a government company.

But the package could help the company stay afloat if it goes for a tariff hike and also gets a strategic investor to pump in at least Rs 25,000 crore. The fund raise proposal was cleared by the company board but the money is yet to come.