Risks of Vodafone Idea's financial profile worsening are receding: Lenders

The company's debt continues to remain high and its current financial flexibility continues to remain strained

Lenders of Vodafone Idea Ltd have said the risks of the company’s financial profile worsening further are lower now — thanks to the recent relief package to the telecom sector — and this will further help eliminate the need to hike interest rates, at least for now.
 
Along with infusion of funds, lenders said they expected the promoters to work on tariff revision.
 
Bank executives said they have begun a modelling exercise on Vi’s financial profile that is likely to emerge from the government’s package, which might have created some room for using a part of current cash-flows to make payments for NCDs.
 
In September 2021, the government cleared a package allowing telcos a moratorium on the payment of adjusted gross revenue (AGR) dues as well as spectrum payments prospectively for the next four years.
 
Under the relief package, the company is required to make the first tranche of AGR payments in March 2022, while the spectrum payments are to resume from April 2022.
 
“With everything being worked out, and the possibility of raising capital in the coming days, things are expected to be under control,” an official of a Mumbai-based large public sector bank said.
 
The company reported a loss of Rs 7,319.10 crore in Q1FY22. According to rating agency Brickwork Ratings, the company’s net worth has been wiped out on account of the continued losses and has turned negative. Its net debt stood at Rs 1.9 trillion at the end of June 2021.

The EBITDA, which has shown improvement in the last few quarters, remains lower than the company’s financial cost and the company’s liquidity position is stretched.
 
Vi has debt obligations of more than Rs 7,000 crore maturing in Q3-Q4 FY22. In August 2021, the agency had downgraded its debentures from “BB-” to “B”.
 
The company’s average revenue per user has come down significantly in the last two quarters from the levels of Rs 120 in Q2FY21 and Q3FY21 to Rs 107 in Q4FY21 and Rs 104 in Q1FY22, respectively. The fall in ARPU has also affected the company’s revenue and profitability at the EBITDA level.
 
A public sector bank official said of the Rs 40,000 crore that Vi owed, more than half was non-fund-based limits (guarantees given for spectrum, etc.), a requirement that will now be reduced.
 
The official said once guarantees are returned, some parts will turn into fund-based limits for Vi’s expansion plan. He further said worries that the government will encash bank guarantees were a thing of the past with a moratorium of four years on government payments.
 
Another executive with private bank said there have been statements about promoters putting in money (equity). This needs to happen soon as the company has upcoming payments on debentures maturing through the second half.