The UK based Vodafone Group Plc, and its local partner Idea Cellular announced that they would be exploring the options of Private Equity (PE) and pension funds to raise about $1 billion. This move will be followed by fundraising worth of $2.5 billion which Vodafone Idea will raise through a right issue to Vodafone Idea Ltd. As per a Live mint report, three people aware of the matter said, “There has been an initial round of talks with some potential investors.” One of the persons said, “Some of the investors have said that they wish to see the overall leverage of Vodafone Idea come down significantly before committing to potential investment.”
They further added to their words saying, “However there is interest among several large investors, who feel that India’s telecom industry which has witnessed a bitter tariff war with the entry of Reliance Jio (Infocomm Ltd) may be heading for a truce.”
Vodafone Idea to Invest Heavily to Retain Top Position
As per the information available, Vodafone Idea Ltd remains under a staggering debt of Rs 1.2 trillion in September, whereas, the debt of Bharti Airtel stands at Rs 1.15 trillion. According to the industry experts, however, the market leader will need to shore up its debt while at the same time spend on its 4G network capacity to stay ahead of others and maintain its top position in the telecom industry.
The second person out of the three said under anonymity, “Vodafone group plans raise the entire $1.5 billion (the UK company’s share in the capital infusion) by pledging its stake in Indus Towers Ltd, which is in the midst of a merger with Bharti Infratel Ltd.”
The currents stats denote that right now Vodafone Group owns 42% stake in Indus Towers, which holds a valuation of $2.5 billion, significantly lower than its previous assessment of $5 billion during the start of this year. To recall, the stake of Vodafone Group in Indus Towers was not part of the Vodafone Idea merger, although now Idea Cellular has also transferred its stake holding in Indus Towers and it now owns 11.5% in the tower company. The sources said, “The fundraiser will be an off-balance sheet transaction in which the entire debt will be raised through a special purpose vehicle, based in a tax-friendly jurisdiction.”
Aditya Birla Also Exploring Fundraising Options for Vodafone Idea
Speaking about the debt of the combined entity, they said, “The debt will be structured in a way that will allow the lenders only limited recourse to its parent, but they will have access to cash flows from Indus Towers to Vodafone Group from its shares.”
The second person also informed, that on the sidelines, Aditya Birla Group is also talking to lenders to raise an additional $1 billion which will be infused into Vodafone Idea. The person added, “The structure of the (Vodafone Idea) fundraiser is being discussed, and it is possible that debt will be raised at the level of overseas entities including the group’s Thailand-based companies.”
Last month, the telecom leader had shared plans of selling its 11.15% stake in Indus Towers, the inflow from which will be used to pare off the telco’s debts, and had also said that the company would invest Rs 27,000 crore in the year 2019-20 basing off its expense on savings of Rs 14,000 crore which the telco aims to obtain by synergizing operations of the merged entity. Vodafone Idea had also added that it would raise more money by issuing fresh shares.