Banks Demand Guarantees, Viability Report as Vodafone Idea Loan Talks Resume

Vodafone Idea Seeks Fresh Loans, Lenders Seek Guarantees and Clarity on Tariff Hikes

Banks have begun to discuss fresh loans with Vodafone Idea Ltd, with a State Bank of India-led consortium seeking to raise around Rs 25,000 crore in debt along with Rs 10,000 crore in letter of credit facilities for 4G and 5G equipment procurement. However, the talks have been slow due to lenders' reluctance to lend on the same terms as SBI, particularly on interest rates.

According to sources, SBI has approached smaller lenders, including PSU and private sector banks, to participate in the funding, as it does not want to remain the largest lender in the consortium. However, smaller lenders are hesitant to lend on the same terms as SBI, citing concerns over the viability of fresh lending from an earnings perspective.

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Lenders have told Vodafone Idea that they will not provide fresh loans unless there is a guarantee from group companies. The company has not yet responded to this request. Meanwhile, lenders are evaluating the proposal and have not taken a final decision on whether they are comfortable extending fresh loans to the telecom operator.

The renewed lender discussions come after the Department of Telecommunications (DoT) finalised Vodafone Idea's AGR dues at Rs 64,046 crore, significantly lower than the earlier Rs 87,695 crore. The relief package, announced on April 30, marked the second major support measure for the debt-laden telco after a similar intervention in December.

Separately, Bloomberg reported that Vodafone Group is considering transferring part of its stake in Vodafone Idea as treasury shares to strengthen the telco's balance sheet and support debt raising. However, Vodafone Idea has dismissed the report as speculative, citing a lack of communication from Vodafone Group.

The company has recently appointed Kumar Mangalam Birla as non-executive chairman, replacing Ravinder Takkar, who has been redesignated as non-executive vice chairman. Sources said Birla's return as chairman is aligned with ongoing lender discussions and intended to provide additional comfort to banks.

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As of December-end, the government remained Vodafone Idea's largest shareholder with a 49 percent stake. Aditya Birla Group held 9.5 percent, while Vodafone Group owned 16.07 percent, according to the company's quarterly filings.

While lenders view the AGR relief positively, they are also awaiting clarity on potential industry-wide tariff hikes that could improve Vodafone Idea's financial position further. Analysts believe that a tariff hike of 20-25 percent may still be required for a sustainable industry structure and for Vi to meet its obligations.

Despite improving lender sentiment after the DoT relief eased near-term cash flow concerns, banks remain cautious over Vodafone Idea's large spectrum liabilities. As of December-end, the company's spectrum dues stood at around Rs 1.25 lakh crore, with nearly Rs 49,000 crore payable over the next three years.

Vodafone Idea's bank debt currently stands at around Rs 4,400 crore, including Rs 3,300 crore raised through non-convertible debentures via a subsidiary. Analysts believe timely debt raising is critical for accelerating network expansion, including 4G coverage enhancement and 5G rollout, both seen as essential for the company to remain competitive.

According to a May 3 note by BofA Securities, Vodafone Idea may require a large capital infusion of $6-8 billion (Rs 50,000-66,000 crore), though such a move could lead to significant equity dilution.