Vodafone Plc may bail out Indian JV company through fund infusion

MUMBAI: A year after its mega $3.6 billion rights issue, Vodafone Group Plc is putting in funds into Vodafone Idea Limited (VIL) to deal with operational requirements including settle AGR dues and take on deep pocket rivals, said two people in the know.While Vodafone is set to put in $200-225 million, the rest is $125-$150 million might come from their JV partner, the officials added, predominantly through the private entities of chairman Kumar Mangalam Birla. Vodafone Plc and Birla Group spokerspersons reiterated their stated position and denied that any fresh equity is being put into Vodafone Idea.However, one of them the officials mentioned above said a tranche of payment has already come through last week of March. The contributions are likely to be in the form of preference capital or redeemable preference shares.As per the original shareholder agreement signed between Vodafone India and Idea Cellular in 2017, there was a 1.1 billion euro “indemnity mechanism” that was chalked out between the two shareholders to take care of historical potential liabilities. The draw down is dependent on certain pre-agreed contractual terms and conditions. During the H1FY20 analyst call last November, Vodafone Plc’s CFO Margherita Della Valle, told analysts, “These liabilities are capped at €1.1 billion… With the current uncertainty surrounding the AGR case in India we’ve not taken any provision on this number.”It could not be independently verified if Vodafone’s contribution is from that specified pool. VIL had according to sources also requested their alliance partner to pay a part of the indemnity payments for the AGR dues.Vodafone Plc and Birla Group spokersperson said no fresh equity is being put into Vodafone Idea.“I can confirm that Vodafone is not intending to contribute further equity into Vodafone Idea,” said its spokesperson from London. However, he did not respond to subsequent ET queries seeking clarification on the advance pay out of a part of the indemnity payments for AGR. Similarly a Birla Group spokesperson said, “The information is not correct. As stated earlier, the Aditya Birla Group does not intend to contribute further equity into Vodafone Idea.”However, preference capital or redeemable preference shares are hybrid form of financing that has certain characteristics of equity and certain attributes of debt instruments like debentures.VIL spokesperson did not respond to ET’s questionnaire.“If money has been kept aside to offset losses arising out of events like AGR accrued from pre-merger era, then technically it is not fresh equity,” said an official familiar with the developments on condition of anonymity as the talks are in private domain.Vodafone Idea has Rs 58,254 crore as AGR dues of which it has already paid Rs. 6,854 crores to the Department of Telecommunications (DoT) in three tranches last month, or its full principal dues as per its self-assessment.75171719SUPPORT SYSTEMSAnalysts believe any shareholder contribution will help the telco for at least the next 2 quarters. The company’s last major fund raising happened via its rights issue, among the largest for corporate India. In comparison, Bharti raised $3 billion in the beginning of the year to repay government dues.Last year, Birla had raised funds for his telecom venture through an extensive reorganisation of his unlisted group companies to cough up funds for his contribution ahead of the rights issue, ET had reported on April 1, 2019. SKI Carbon Black Mauritius Ltd had bought a controlling interest in Swiss Singapore Overseas Enterprises Pte Ltd, for $450 million to cough up funds for his contribution ahead of the rights issue, ET had reported on April 1, 2019. SKI Carbon Black Mauritius Ltd the holding company of Birla’s sprawling carbon black business had bought a controlling interest in Swiss Singapore Overseas Enterprises Pte Ltd, a bulk trader of various metals and minerals trading company for $450 million. Both were promoter companies of the Aditya Birla Group chairman. Birla owns 100% of Kiran Investments, which in turn owns these entities.SKI in turn owns 32.2% in Thai Carbon Public Co, 60.5% in Alexandria Carbon Black Co and 100% of SKI Carbon Black India. Sources said, another round of rejig is ongoing in these private companies to raise money in the telecom venture in India.Ahead of the rights issue and then last July, Vodafone Plc too had raised funds against its Indian telecom investments -- including a 45.2% stake in VIL and 42% of Indus Towers, a three-way alliance with Bharti Infratel and Aditya Birla Telecom from a group of global banks including Bank of America Merrill Lynch among others, said banking sector officials. However, telecom analysts believe while the company may be able to tide over FY21-22, due to a two-year moratorium on spectrum payments, servicing these payments from FY23 will be a challenge, feel analysts at Jefferies even as tariff discipline and a pop in ARPUs due to work from home during the ongoing Covid lockdown is likely to see sectoral revenues improve. “Over FY21-23, Vodafone Idea has to service interest, debt repayment, AGR and spectrum payments of Rs 127-268 bn assuming its outstanding AGR dues of Rs 460bn are spread over 20 years. The company is likely to tide over FY21-22 if it manages to refinance its non-spectrum debt repayments and does no capex, however it will still have a cashflow gap of Rs 122bn which will have to be funded by either EBITDA increase or capital infusion/asset sale,” said Akshat Agarwal and Pratik Chaudhuri, telecom analysts with Jefferies.However, some do believe VIL’s promoters may even consider an additional capital infusion of at least $1-1.5 billion (Rs7,376-11,060 crore) over the next six to nine months if the government approves a sharp reduction in VIL’s AGR dues, allows a long repayment calendar and signals an early floor tariff for data services. This could send growth revival signals “and encourage VIL’s promoters to reassess their stance of ‘no equity infusion’ to bolster the struggling telco’s financial position for competing more effectively with Bharti Airtel and Reliance Jio Infocomm,” said CLSA analysts.“Vodafone Idea may need Rs 10000 crore -Rs 12,000 crore over the next few months -provided SC accepts staggered payment options. The infusion will be for both AGR and capex funding, said Rajiv Sharma, head of research at SBICap Securities. “However once the spectrum moratorium gets over in next 2 years, Voda Idea will need an additional Rs 10,000 crore -Rs 15,000 crore to ensure AGR and spectrum payment dues are met and investments in network capex don’t suffer.”

from Economic Times https://ift.tt/2z5fqhL