Vodafone Idea’s ₹35,000-crore loan bid faces fresh lender scrutiny

An external techno-economic viability (TEV) study done in 2024 to examine Vodafone Idea’s creditworthiness will be updated with new projections, and a fresh TEV will not be done, the person said on condition of anonymity. The update will also take into account the recent court relief on adjusted gross revenue (AGR), which came after the TEV was submitted.

“While the AGR issue has been settled, lenders have no clarity on the telco’s spectrum dues, which are substantially higher than AGR,” said the person cited earlier. “The earlier loan proposal was based on assumptions about the performance of the company, and these assumptions will now be tallied with the actuals.”

He said that the company has been forthcoming with data and is aiding the process that will culminate in lenders discussing the plan with the consortium. “The final call on the loan will be taken after that,” this person said.

Notably, the telecom operator has been struggling with debt, fundraise, and is losing subscribers steadily as it is unable to upgrade its network and reach. In the time since the TEV was done, Vodafone Idea has lost 7 million subscribers.

Vodafone Idea’s Arpu was at ₹172 a month as of December-end, whereas Jio’s Arpu was ₹213.70. Airtel currently leads the industry with ₹256 Arpu a month as of September-end.

Banks are concerned that Vodafone Idea’s Arpu has also been lower than the industry average, as users have limited access to the 5G network.

A banker said that the fresh loan proposal is yet to be presented to the consortium of lenders, and they will take a call based on what it says. “We have less than ₹500 crore exposure to Vodafone Idea and will assess the proposal once we have more details,” the banker said, also requesting anonymity. The lenders’ consortium is led by the State Bank of India (SBI).

Vodafone Idea owes ₹1,126 crore to banks as on 31 December, as per a company statement on 27 January. In addition, the company raised ₹3,300 crore through a subsidiary via non-convertible debentures during the December quarter.

Emails sent to SBI and Vodafone Idea remained unanswered till press time.

Calculating dues

To be sure, the company currently has total debt of ₹2 trillion as of December-end, of which AGR comprises ₹87,695 crore, and a total deferred payment obligation (including interest accrued but not due) towards spectrum of ₹1.25 trillion as of 31 December.

Its AGR dues have been frozen following the Supreme Court’s verdict in October and November last year. The apex court had allowed the government to reassess and reconsider all of Vodafone Idea’s AGR dues as of FY17, including interest and penalties.

The relief was key for the cash-strapped telecom company as it had indicated last year that it will not be able to operate beyond FY2025-26, as it did not have the ability to pay AGR installments to the government starting March.

The company’s stock has risen 14% since the day the Supreme Court verdict came in.

Meanwhile, an official aware of the matter said the government is currently working on an exercise to recalculate its AGR dues and arrive at a final number.

“Already, the freezing of AGR dues and a long moratorium on payment has resulted in significant relief for Vodafone Idea. That relief should help the company raise bank debt,” the official said, adding that spectrum dues of the company are a concern but so far no more relief is on the cards.

Last year, the government had converted ₹36,950 crore of spectrum dues of Vodafone Idea into equity, which took its stake in the telecom operator to 49%. With the relief on AGR dues payments, the government wanted to ensure that the company gets a breather and that the exchequer’s spectrum dues are at least paid, the official added.

The company has spectrum payment obligations of about ₹49,000 crore over the next three years. The instalment would be approximately ₹7,000 crore in the first year, ₹15,000 crore in the second and around ₹27,000 crore in the third.

Planning for growth

Besides the spectrum instalments, the telecom operator last week unveiled a ₹45,000 crore capex plan over the next three years. The company aims to invest in network deployment, along with a strong marketing push, targeting double-digit revenue growth, sustained subscriber additions, and a threefold increase in earnings before interest, tax and depreciation (Ebitda).

“…the Ebitda of three times from now and the business efficiencies that are built into that, I think the way we are really looking at it is that it takes care of the spectrum (payment), including the capex that we are talking of. So that’s the part of the cash flow that we are looking at,” Abhijit Kishore, chief executive officer, said in an earnings call with analysts last week.

“As far as any moratorium of spectrum is concerned, I don’t think we ever were representing that, nor are we doing it today. That’s part of the cash flow that we have baked in, and we will be paying through our cash flow on the spectrum. So we are not really talking to the government on the spectrum moratorium or any kind of relief on this,” Kishore said.

Vodafone Idea is hopeful that the AGR dues resolution will help raise ₹35,000 crore in bank debt, including ₹10,000 crore in non-funded debt. The company is also not planning to raise equity capital at this time.

Raising funds is key

Telecom analysts expect the company’s cash Ebitda to be at ₹9,100 crore in FY26—its cash Ebitda in FY25 was ₹9,200 crore. They, however, said the company’s three-year Ebitda target of about ₹30,000 crore is aggressive, and a turnaround is largely dependent on the fundraise. Ebitda is short for earnings before interest, tax, depreciation and amortization.

“In the absence of any external equity and/or reprieve on spectrum dues payable, spectrum payments of ₹49,000 crore over FY2027-29 suggest a significant cash shortfall. The bank debt raise thus becomes key for the near-term revival of Vi (Vodafone Idea),” said analysts at brokerage Kotak Institutional Equities in a note dated 29 January.

According to the brokerage, Vodafone Idea is confident of raising bank debt in the near term, but securing it before a turnaround in operational performance would be challenging. “We expect competitive intensity in the sector to remain high, given the formidable leaders, which would make subscriber gains difficult.”

On Vodafone Idea’s subscriber loss, even analysts have echoed concerns raised by banks.

“The moratorium from the DoT (Department of Telecommunications) provides much-needed breathing space to VIL, however, it is still not completely out of the woods, as investor attention remains focused on the delayed debt fund-raise, which is critical to support capex, stem subscriber losses and raise Arpu,” said analysts at brokerage Nuvama in a note dated 28 January.

As of December end, Vodafone Idea’s mobile subscriber base stood at 193 million, down 7 million from 200 million in the year-ago period.

In comparison, Reliance Jio’s mobile subscriber base was at 490 million as of December end. Including fixed wireless access and fibre connections, Jio’s total subscriber base was 515.3 million. Bharti Airtel, which is yet to declare its December quarter earnings, had 364 million subscribers as of September end.

Kishore said that over the past six years, Vodafone Idea had been losing about 15-16 million customers a year. So far this year, subscriber losses are at 5.3 million.