In its run-up to raise money for operational costs and to better compete with telcos like Reliance Jio and Bharti Airtel, Vodafone Idea Limited has transferred its fibre networks assets to a wholly owned subsidiary. This segregation of the fibre network assets by the company will allow it to now engage in talks with potential buyers and will also fasten the transfer process once the deal is finalised.
Asset Sale to Fuel VIL’s Capex Requirements
As per a note seen by ET Telecom and drafted by Bank of America Merrill Lynch “Vodafone Idea CFO Akshaya Moondra said the company has moved its fibre (assets) to a wholly owned subsidiary, and a potential sale would help release capital (into the core mobility business) and reduce future capex investment.” A brokerage firm also said that Vodafone Idea had shared plans of monetisation of fibre network assets recently in an analysts’ meet.
It was earlier this month that Vodafone Idea announced its plans of monetising its sizeable fibre network assets along with its plans of raising Rs 25,000 crore fund via equity infusion. Vodafone Idea will be taking this pathway to bump up its financials and to meet its capex needs and to boost 4G network coverage while competing with Reliance Jio and Bharti Airtel.
The newly merged telco posted its financials in the quarterly report with the quarter ending in September. The situation did not look good as the telco posted Rs 4,974-crore loss with an Ebitda (earnings before interest, taxes, depreciation and amortisation) margin of just 8.1%. On top of that, the telco stands under a staggering debt of Rs 1.15 lakh crore combined with its capex needs for expanding the 4G network.
Separation of Assets to Bring Operational Efficiency
Earlier this month, VIL chairman, Kumar Mangalam Birla had also met with top government officials to discuss a deferred payment timeline for the telco to ease the financials. As per an analyst at a leading foreign brokerage firm, the value of VIL’s fibre network asset has been estimated to be around $430-450 million, however, if VIL decides to commit to leasing the fraction of these assets for long-term, then the value of the assets might rise up to $550 million as well. Also, as per the report from ET Telecom, a large chunk of VIL’s fibre network assets are on inter-city routes spanning, 1,56,000 kms. This fibre network is mainly being used for backhaul, meaning connecting the core telecom network, to nodes and then on to the towers.
Representatives of Vodafone Idea have also remarked that the separation of fibre network assets would mean capex avoidance for the telco and would bring operational efficiency. Another investment firm, Motilal Oswal has said that VIL has hinted plans “to play a role in an independent fibre sharing entity in future to restrict incremental capex”.