Vodafone Idea can use only around 25% of Rs 4,500 crore of fresh capital infusion by promoters

Analysts said Vi needs a much bigger dose of equity financing to be able to invest at least Rs 20,000 crore on its network in the next 2 years to improve competitiveness and drive average revenue per user (ARPU) growth.

The Vi board on Thursday cleared a plan to raise Rs 4,500 crore from its promoters via a preferential allotment and an additional Rs 10,000 crore from external investors even as the cash-strapped telco tries to revive operations and take on Jio and Airtel.

“The equity infusion is inadequate (as) effectively, only 25% of the Rs 4,500 crore infusion from promoters, representing ABG’s share of Rs 1,125 crore, would be available unencumbered to Vi as almost the entire infusion from Vodafone Plc (read: Rs 3,375 crore) will be used to clear Vi’s existing overdue balance with Indus Towers,” Credit Suisse said in a note seen by ET.

IIFL Securities backed the view, saying the sum left for Vi to invest in its network from the latest equity infusion would be only Rs 1,000-2,000 crore.

“Considering Vi’s current net debt of Rs 1.97 lakh-crore (30.5x leverage ratio), the deleveraging would be miniscule, and the ability to raise the annualised capex rate from the current Rs 4,000 crore would be limited,” it said.

IIFL said Vi needs “significantly higher equity infusion and ARPU improvement” to boost competitiveness, adding that the loss-making telco needs to “invest Rs 20,000 crore on its network in 2 years to support 200 million 4G subs”.

Analysts said Vi needs serious levels of funding quickly to bolster 4G operations across its 16 priority markets to arrest its rapid subscriber losses and also to participate meaningfully in the upcoming 5G spectrum sale, likely around May-June.

Shares of Vi rose 6% at open on Friday morning but shortly thereafter pared gains to be trading nearly 6% lower on the BSE at Rs 10.43.

To be sure, analysts said the promoter-level equity infusion is likely to boost Vi’s prospects of raising more capital from external investors. Edelweiss said “fund infusion from Vi’s promoters will help drive confidence for raising funds from external investors, but the overall operating environment continues to remain challenging”.

Citi Research said “completion of the capital raise is a positive,” but the focus would now shift to Vi’s execution, especially on accelerating network investments and stemming market share losses.

Brokerage IIFL estimates the latest infusion by promoters will alter the stakes of UK’s Vodafone and ABG in Vi to 47.6% and 27.4% from 44.39% and 27.66% respectively.

But analysts said Vi’s latest shareholding could change significantly if the government agrees to own a sizable chunk of the telco following the latter’s recent decision to opt for converting interest — accruing due to deferred statutory payments — into government equity. The Department of Telecommunications (DoT) hasn’t confirmed this yet.

“The DoT is evaluating Vi’s calculation around letting the GoI acquire a stake in Vi in lieu of Rs160bn interest during the 4-yr moratorium period…if Vi’s calculations hold, (and) equity is issued to the government, along with the preferential issue to promoters, Vodafone Plc, ABG and GoI would end up with 31.8%, 18.3%, and 33.3% stakes in Vi respectively,” IIFL said in a note.

Going forward, Credit Suisse estimates that only a modest “Rs 1,000 crore would be available for further infusion by Vodafone Plc into Vi” as the UK company has already used up Rs 11,800 crore — of the estimated Rs 19,000 crore valuation of its original 28.1% Indus stake — when it subscribed to Vi’s Rs 25,000 crore rights issue in 2019 by pledging the Indus stake with banks.

Last week, UK’s Vodafone sold 2.4% in Indus to unnamed investors in a block deal, and once it concludes the planned sale of another 4.7% in the tower company to Airtel, its holding in Indus would drop to 21%.

Under its pact with Airtel, the 4.7% Indus stake sale proceeds must be infused in Vi, which, in turn, would use it to clear its payables to Indus.

Vodafone Plc has indicated it can sell 127.1 million shares, or 4.7%, in Indus to Airtel for a maximum Rs 224.57 a share. Investment banking sources, though, say the final sale price could be much lower at around Rs 200 a share, after factoring in discounts available on such block deals and broker fees. That would net the UK telco under Rs 2,600 crore.

Japanese brokerage Nomura said that “despite the full impact of the (last) tariff hike and promoter infusion, we don’t think any meaningful increase in Vi’s capex would be possible in FY23F, in absence of external fund raise and/ or debt recast”.

It added that without significant external fund-raising, Vi’s network investments and 5G rollout would remain constrained in the near term, leading to further market share erosion and revenue share gains for Airtel and Jio.

UBS said the Vi board approval to raise Rs 10,000 crore from external investors via private placement, QIP or by any other permissible means is more an “enabling approval with no clarity on when and how the funds will be raised”.