Vodafone Idea may tap FCCB route to raise $750 mn-$1 bn

“The company is considering tapping the overseas bond markets in early February, as it needs immediate funds for investing in its networks, making payments to vendors and arresting subscriber losses,” one of the people told ET.

‘Govt Holding Seen as Matter of Comfort for Bond Investors’

An emailed query sent to the company did not elicit a response till the time of going to press on Thursday.

The move comes after the company on Tuesday decided to convert its interest on deferred spectrum and adjusted gross revenue (AGR) payments into government equity, giving the government a possible 35.8% stake in the company. The government holding is seen as a matter of comfort for bond investors, experts say.

Holding gross debt of Rs 1.9 lakh crore on its books, including deferred spectrum and AGR payment obligations to the government and debt from banks and financial institutions, the company’s cash and cash equivalents had slumped to Rs 250 crore at September end from Rs 920 crore at June end.

“With the government debt being converted to equity, there will be a substantial improvement in Vi’s credit ratios,” said Hemant Mishr, founder and CIO of SCUBECapital, a Singapore-based global fund, making the case for the otherwise highly-leveraged company to tap bond markets.

Mishr added that in spirit, Vi continues to be a private sector company, being managed professionally. “On the back of an improved balance sheet, there will be potential appetite from international investors in the loan, bond and FCCB (foreign currency convertible bond) markets, provided the valuation remains reasonable”.

Vi has been in talks for several months with a slew of PE players such as US-based Apollo Global for equity and debt funding, but hasn’t managed to seal a deal yet. Its top management has previously said that the telco will finalise a funding deal by March end, a stance that its managing director Ravinder Takkar reiterated on Wednesday.

The equity funding also depends on how much capital the promoters bring to the table. ET has earlier reported that Kumar Mangalam Birla, chairman of the Aditya Birla Group and a Vodafone Idea co-promoter, is likely to infuse around $200 million of his personal funds in the loss-making telco, with the other parent – UK’s Vodafone Group – also likely to bring in a similar amount. Due to the government stake, Vodafone Group’s holding is likely to fall from 44.39% to 28.5% and ABG’s holding, from 27.66% to 17.8% in Vi.

“The company is trying to tie up capital by the end of March but until that happens, it needs to keep generating funds as it has to pay its vendors and meet other network expenses,” a senior industry executive told ET.

Vi’s management in an investor call in December had said the company was planning to increase capex four times to $2 billion in the next fiscal year starting April.