Both infra-focused government lenders, which specialise in power-related projects, have told the company that for any loan proposal to be considered, Vodafone Idea (Vi) will have to furnish an extra cover through corporate guarantees to shield these proposed commitments from any future default, top financial industry sources involved in the discussions told ET.
What Weighed on Lenders’ Minds
REC chairman Vivek Kumar Dewangan confirmed that the lender had told Vi it is not feasible for REC to consider its loan proposal.
“We evaluated the proposal thoroughly and found that it did not meet our internal assessment, criteria and policies, and so we have conveyed to them a few weeks ago that we will not be able to consider this loan,” Dewangan told ET.
In a letter addressed to Vi CEO Akshaya Moondra last month, REC said that it is unable to proceed with the financing “due to constraints in terms of internal policies, guidelines and laid down procedures of the company.” ET has seen a copy of that letter.
REC’s parent PFC, which considered the loan proposal as well, has also declined, people familiar with the matter said. PFC did not respond to an email seeking comment.
The reluctance of PFC and REC to extend funds to Vi dents the telco’s efforts to raise funds for its capital expenditure because banks are also wary to lend, especially after the Supreme Court rejected Vi’s curative petition, ET reported last month. That plea had sought a review of the apex court’s 2019 judgment on re-computation of adjusted gross revenues (AGR) payable by telecom firms.
LOW EARNINGS VISIBILITY
“Both PFC and REC have never done telecom, which was a big constraint,” said a person familiar with the discussions. “Also, given the tough competition and pressures on Vi’s earnings due to the various pending government dues, there was some wariness on how the funds will be used and how much at all will be used for capex. All these things weighed on the PFC-REC decision.”
Experts believe that Vi’s failure to raise additional funding will make it tough for the company to compete with bigger rivals Reliance Jio and Airtel. The company has recently closed deals with equipment vendors—Nokia, Ericsson and Samsung—for 4G and 5G gear, but it has a lot of catching up to do.
The company has lost 19% market share since a 2018 merger of Vodafone and Idea operations due to inadequate network spends, say analysts. The launch of 5G and upgradation of 4G network would help the company bring down attrition.
Vi did not respond to ET’s queries until the publication of this report.
“Ultimately, it has now boiled down to the Aditya Birla Group giving some comfort to lenders. The discussion with banks is also stuck because no lender wants to lend to the company without more guarantees,” said a second person involved in the discussions. “Banks have made their thoughts clear and now with PFC-REC also declining, the ball is in the promoter’s court.”
Earlier this year, Vi raised Rs 24,000 crore via a mix of follow-on and preferential issues that diluted the government stake to 23.80%, Vodafone Plc’s stake to 23% and the Birla group’s holding to 18%. The company is seeking Rs 25,000 crore from lenders and another Rs 10,000 crore in bank guarantees to continue its capital expenditure to run the company.
SHARES SLIDE
Vi shares have fallen to Rs 8 per share from a post-follow-up offer high of Rs 19 apiece in June. The shares are now priced below the follow-up issue price of Rs 11 per share.
On its part, the government is considering a proposal to waive the bank guarantee requirement for securitisation of deferred spectrum instalments. A draft Cabinet note has been issued by the department of telecom (DoT) in this regard and comments from the finance and law ministries are awaited.
