Banks to seek govt guarantee on equity conversion before lending to Vi

Some public sector banks are planning to seek assurance from the government that it would convert part of its dues lying with Vodafone Idea (VI) into equity, according to three senior executives of banks who spoke to Business Standard on condition of anonymity. Their banks have been approached by the cash-strapped telecom company for fresh loans.

“Banks are still hesitant to provide funding to VI, but the company keeps approaching us. To move forward, banks are planning to meet with the government to request a commitment to convert its dues into equity in VI,” one of the sources said.

The telecom giant is seeking to borrow approximately Rs 35,000 crore, but most banks are wary of extending credit, particularly as VI has struggled to raise funds from other sources. The bank executive pointed out that VI’s outstanding dues to the government remain a significant hurdle: “If the government can provide clarity on this, we may consider lending.” An e-mail request to the telecom provider for comment remained unanswered until the time of publication.

VI has made some strides in reducing its debt, with the company’s obligations to banks and financial institutions decreasing to roughly Rs 4,800 crore in the first quarter of 2024-25, down from Rs 9,200 crore a year earlier. However, it faces a looming payment of Rs 12,000 crore to the government between October 2025 and March 2026, with an additional Rs 43,000 crore in annual payments due from FY27 to FY31.

The government, which holds a 33.4 per cent equity stake in VI following the conversion of Rs 16,000 crore in interest dues, is the company’s largest creditor. However, since then, despite remaining the biggest single holder of stake, the government's ownership of the telco has diluted to 23.1 per cent, after Vi concluded a follow-on public offer (FPO), and multiple rounds of preferential share issuing to vendors and owners. These dues stem from deferred adjusted gross revenue (AGR) and spectrum instalment payments.

 

As of the first quarter of FY25, VI reported total debt of Rs 2.09 trillion. This includes Rs 1.39 trillion in deferred spectrum payment obligations and Rs 70,320 crore in AGR liabilities owed to the government.

Last month, VI’s chief executive officer, Akshaya Moondra, told analysts that the company had initiated a “fresh dialogue” with the government to resolve the AGR dues issue. He maintained that VI's long-term business plans and revival strategy remain “unaffected” by the pending outcome of a curative petition. He also expressed optimism about completing the company’s debt-raising efforts within two months, noting that an independent third party had already conducted a techno-economic evaluation.   

But on September 19, the Supreme Court had rejected curative petitions from telecom firms seeking a review of its 2019 judgment on AGR dues. The court’s ruling allowed the Department of Telecommunications (DoT) to include all non-telecom revenue in the calculation of AGR. The curative petitions represented telcos’ last legal resort to reduce their burden of Rs 1.43 trillion in AGR repayment, based on a subsequent judgment in 2020. Of this amount, nearly 75 per cent comprises interest, penalties, and interest on penalties. The government was set to receive Rs 92,461 crore as licence fees and Rs 55,000 crore as spectrum usage charges.

Notwithstanding Moondra’s confidence, banks remain cautious. “As a company, they may appear confident, but we still need some time before deciding to lend,” another banking official commented.

Moondra highlighted that VI’s $3.6 billion (approximately Rs 30,000 crore) deal with global vendors such as Nokia, Ericsson, and Samsung covers all necessary radio equipment for its planned expansion of 4G coverage, which is expected to reach 1.2 billion Indians, up from 1.03 billion.

As of the first quarter of FY25, the telco’s 4G user base stood at 126.7 million, comprising 60 per cent of its total customer base of 210.1 million subscribers. While the company has managed to grow its 4G user base for 12 consecutive quarters, it has lost 2.5 million subscribers overall to competitors like Jio and Airtel. Following the exodus of high-end customers to its rivals, VI now faces the additional risk of losing its 2G customers to state-run telecom company BSNL, which has not raised tariffs, unlike its private competitors, which increased prices in July.