SBI-led Consortium Considers ₹25,000 Crore Debt Funding for Vodafone Idea

A State Bank of India-led consortium is considering extending ₹25,000-crore debt funding to Vodafone Idea, signaling improved lender confidence in the telco after the government slashed its dues by 27% last week.

The country's third-largest telco, which has laid out a three-year turnaround programme, is seeking a ₹25,000-crore term loan and another ₹10,000 crore in short-term working capital requirements.

The Department of Telecommunication (DoT) on Thursday reduced Vi's adjusted gross revenue (AGR) liabilities to ₹64,046 crore from ₹87,695 crore previously, in a major cash-flow relief. The bulk of the payments will now be staggered from FY36-41, effectively allowing a 10-year moratorium on Vi's liabilities and enough breathing room for the telco to invest in its networks.

Bankers said the latest AGR development is positive for the company because it helps it to concentrate on investing in improving infrastructure rather than worry about government dues. However, they are still cautious given the company's challenging situation as it has ceded market share to larger rivals Reliance Jio and Bharti Airtel.

"Meetings between banks and Vi are ongoing ever since the AGR dues were frozen in January," a person aware of the discussions told ET. "The company's position, no doubt, has improved but no bank wants to take the lead in lending to this company. SBI, the lead bank, has made it clear it does not want to be the only bank lending, so the onus is on Vi to convince more banks to take a positive call."

Vi is targeting capital expenditure of ₹45,000 crore over the next three years to accelerate network upgrades, achieve 5G parity in key markets and drive a turnaround in performance. This is in addition to ₹18,000 crore it has already invested, which demonstrated tangible results, according to the management.

The company is aiming for double-digit annual revenue growth and to multiply its Ebitda by three times in three years. This will enable Vi to service its pending spectrum dues organically.

Besides AGR, Vi also faces spectrum-related payments of ₹7,000 crore in FY27, ₹15,000 crore in FY28 and ₹28,000 crore in FY29.

Bankers said while the company's government dues will reduce substantially after the latest AGR relief, Vi still needs to do more to showcase its paying capability. "Vi has to improve its revenue per user to be back in the game, for which they have to invest," a second person aware of the details said. "There are also large spectrum dues which will come up in a few years. A lot of questions are there on the company."

While the promoters are seen as strong with the presence of Aditya Birla group, "banks will need more clarity before they sanction more loans," the person added.

Analysts at Citi Research and Morgan Stanley noted that with regulatory uncertainty largely behind it, the company is now better placed to close its debt raise.

"With no interest accruing and the effective 10-year repayment moratorium remaining in place (99% of the dues are payable over FY36-41), this meaningfully improves the economics of the liability," Citi said in a note. "With this chapter of regulatory uncertainty now largely behind it, we believe Vi is better positioned to close its pending ₹250 billion bank debt raise."

Morgan Stanley, however, in a report said even with the current relief, "we continue to believe that a tariff hike (at least 20-25%) would be required to sustain current market structure and for the third player to meet its remaining payment obligations."