Vi secures Rs 14,000 crore lifeline from SBI-led consortium

In a bid to stabilize its financial footing amidst significant challenges, Vodafone Idea, a prominent player in the Indian telecommunications sector, has secured a crucial lifeline from a consortium of predominantly state-run lenders spearheaded by the State Bank of India (SBI). This consortium has agreed to extend a substantial credit line amounting to Rs 14,000 crore to Vodafone Idea, which has been grappling with severe financial strains exacerbated by intense competition and operational losses.

The infusion of Rs 14,000 crore forms a pivotal component of Vodafone Idea’s broader funding strategy totaling Rs 25,000 crore earmarked for capital expenditure (capex). This funding initiative aims to bolster the company’s efforts to revamp its operations, including the rollout of 5G services—a crucial step in its endeavor to regain competitiveness and viability in the market.

Sources familiar with the matter have revealed that alongside SBI, the consortium includes other major state-owned banks such as Central Bank of India, Punjab National Bank, Bank of Baroda, and Union Bank of India among others. The loan, structured to be disbursed in phases, is intended to support Vodafone Idea in several strategic initiatives. These include clearing debts owed to operational creditors, advancing the deployment of a long-delayed 5G network infrastructure, and securing additional spectrum through ongoing auctions—a pivotal move to strengthen its service offerings and network capacity.

The decision by banks to commit to this substantial loan follows Vodafone Idea’s successful execution of an Rs 18,000 crore follow-on public offer (FPO) earlier this year, which garnered overwhelming investor interest and was oversubscribed multiple times. Global investors, including entities like GQG Partners and Citigroup Global Markets, demonstrated confidence in the company’s potential for turnaround amidst its financial restructuring efforts.

The path to securing this crucial credit facility has not been without its challenges. Vodafone Idea’s management, led by chief executive Akshaya Moondra, navigated demands from lenders who stipulated an equity infusion as a prerequisite for extending further loans. In response, the company swiftly conducted the FPO to raise necessary equity capital, paving the way for resumed negotiations with the banking consortium.

The financial landscape for Vodafone Idea has been fraught with losses, with its recent financial results for the quarter ending March 2024 revealing a widening net loss amounting to Rs 7,674 crore. Despite these challenges, the company managed to improve its average revenue per user (ARPU) to Rs 146, reflecting incremental gains in monetizing its subscriber base amidst evolving tariff strategies and market dynamics.

Looking ahead, Vodafone Idea has outlined an ambitious capex plan amounting to Rs 50,000-55,000 crore over the next three years. This substantial investment is earmarked for expanding 4G coverage in priority circles, launching 5G services in key urban centers, and enhancing network capacity to meet escalating data demands. The company continues to experience growth in its 4G subscriber base, underscoring resilience amidst operational hurdles.

In parallel efforts to fortify its financial position, Vodafone Idea has secured significant equity infusions totaling Rs 7,000 crore from its promoter groups between March 2022 and May 2024. These strategic capital injections, including preferential allocations from Aditya Birla Group entities and Vodafone Group, have contributed to mitigating debt levels and supporting operational initiatives.

The telecommunications landscape in India remains fiercely competitive, dominated by aggressive market players like Reliance Jio, which have reshaped industry dynamics with disruptive pricing and expansive service offerings. Against this backdrop, Vodafone Idea’s strategic maneuvers, bolstered by crucial financial backing from state-run lenders and sustained investor confidence, are poised to play a pivotal role in its trajectory towards financial recovery and long-term sustainability in the telecommunications sector.

Analysts caution that while the funding will support Vi’s immediate operational needs and expansion plans, challenges remain in terms of the telecom sector’s dynamics and Vi’s substantial debt obligations. They highlight the necessity for Vi to consider tariff hikes and potential government assistance to achieve sustainable growth and profitability. BizzBuzz