Vodafone Idea (Vi) reportedly could not secure a long-term loan from a consortium comprising Power Finance Corp (PFC) and its subsidiary, Rural Electrification Corp (REC), both of which have rejected the telco's proposal. The decision was based on a mismatch with internal underwriting guidelines and concerns over the collateral offered. REC chairman Vivek Kumar Dewangan confirmed that the lender had informed Vi that it is not feasible for REC to consider its loan proposal, according to an ET report.
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Reasons for Rejection
"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 will have to furnish an extra cover through corporate guarantees to shield these proposed commitments from any future default," the report quoted top financial industry sources involved in the discussions as saying.
"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 said, according to the report.
"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," the publication reported.
"REC's parent company, PFC, which also considered the loan proposal, has also declined," the report said, citing people familiar with the matter.
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Market Reactions and Investor Concerns
This setback complicates Vi's efforts to raise capital for crucial expenditures, particularly as banks remain hesitant to lend following a recent Supreme Court ruling that impacted the company's financial standing. Analysts note that Vi has lost 19 percent of its market share since the 2018 merger of Vodafone and Idea, largely due to inadequate investment in network infrastructure.
"Both PFC and REC have never done telecom, which was a big constraint," said a person familiar with the discussions, according to the report. "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."
Recent 4G, 5G Deals
Despite recent deals with vendors for 4G and 5G equipment, the lack of funding could hinder Vi's competitive edge against operators like Reliance Jio and Airtel. Shares of Vi have plummeted from Rs 19 to Rs 8, underscoring investor concerns about the company's financial health.
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"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," the report said, citing a second person involved in the discussions as saying. "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 through a combination of follow-on and preferential issues, which reduced the government's stake to 23.80 percent, Vodafone Plc's stake to 23 percent, and the Birla group's holding to 18 percent. Reportedly, the company is now looking to secure Rs 25,000 crore from lenders and an additional Rs 10,000 crore in bank guarantees to support its capital expenditure and ongoing operations.
Also Read: DoT Drafts Proposal to Waive Bank Guarantees for Spectrum Dues Following Vi’s Call: Report
DoT Proposal to Wave BGs
According to earlier reports, the government is considering a proposal to waive the bank guarantee requirement for the securitisation of deferred spectrum instalments. The Department of Telecom (DoT) has released a draft Cabinet note on this matter, and feedback from the finance and law ministries is awaited.
