Vodafone Idea plans to raise $750 million via convertible debentures

Promoters to dilute stake post conversion

Vodafone Idea Ltd (VIL), a joint venture between Vodafone Group Plc of the UK and the Aditya Birla group, is planning to raise up to $750 million (about Rs 5,500 crore) via convertible bonds to repay its adjusted gross revenue (AGR) dues and spectrum fees to the government. Following this, both the promoters will significantly dilute their stake in the company.

According to a banker close to the development, VIL, the third-largest telecom operator in the country, has initiated talks with investors to raise the funds, and the bonds will be launched anytime in the next quarter.

Vodafone Group holds 44.39 per cent in VIL, while the Aditya Birla group owns 27.66 per cent. As of Friday, the company had a market valuation of Rs 29,450 crore, with shares of VIL closing at Rs 10.25 apiece.

Another banker said convertible bonds were yet again attracting overseas investors, with Bharti Airtel ($1 billion) and Indiabulls Housing Finance ($150 million) raising funds via this route. Convertible debentures had fallen out of favour after several Indian companies defaulted on their bonds after the 2008 financial crisis, the banker said.

When contacted, a Vodafone Plc spokesperson declined to comment. An email sent to the Aditya Birla group did not elicit any response till the time of going to press.

The bond issue is part of the company’s fundraising plan of Rs 25,000 crore, cleared by its board in September last year. Media reports had earlier said the company was planning to raise $2 billion from a couple of foreign investors, but they backed out.

VIL is financially struggling due to cut-throat competition unleashed by its competitors -- Reliance Jio and Bharti Airtel -- and an adverse Supreme Court judgment, which asked it to pay about Rs 58,000 crore of dues to the government. Later, in September last year, the top court watered down its order and asked telecom companies to pay only 10 per cent of the total AGR dues by March 2021 and the rest in annual instalments, commencing in April 2021, by March 31, 2031.

The AGR dues for VIL aggregated to Rs 58,250 crore up to fiscal year 2017 on the basis of the preliminary assessment by the Department of Telecommunications. VIL has already paid Rs 7,854 crore towards AGR dues, and will have to pay 10 per cent by the end of this month.

The bond issue comes at a time when VIL's net worth has completely eroded and its auditor has warned of material uncertainty on going concern of the company. The gross debt (excluding lease liabilities), as of September 30, 2020, was Rs 1.16 trillion, including deferred spectrum payment obligations of Rs 92,310 crore. The total debt servicing obligation between October and March-end is around Rs 1,780 crore.