The government’s decision to convert Rs 36,950 crore of Vodafone Idea’s (VIL) outstanding spectrum auction dues into equity is expected to ease the telecom operator’s financial stress, enabling it to focus more on improving operations and technology, say industry experts.
According to Prashanth Tapse, Research Analyst and Senior Vice President (Research) at Mehta Equities, the company’s future outlook will largely depend on its ability to launch 5G mobile broadband services effectively and manage subscriber churn. While the recent development may bring short-term relief to investor sentiments, the long-term outlook remains subdued.
“The recent development that the government is raising its stake to 48.99% in Vi will ease some financial stress and help Vi to focus more on improving operations and technology. Despite this material development the challenges to raise capital and network expansion will continue to dent investors’ concerns. These developments may influence investor sentiments but will not address the challenges,” said Tapse.
As per Citi, the announcement is a “major” and “timely” display of government support, expected to offer significant cash flow relief to Vi over the next three years and help the company complete its long-delayed bank debt raise. The move also alleviates concerns for tower companies like Indus Towers. Additionally, Citi highlighted that the ongoing launch of 5G services in select cities, including Mumbai, should improve sentiment around Vi by helping arrest subscriber losses, going forward.
The brokerage noted that Vi’s high balance sheet leverage had been a persistent concern, worsened following the Supreme Court’s verdict on the AGR issue in October 2019. Citi believes this development will help Vi move one step closer to securing its long-delayed debt raise from banks, providing the financial stability needed to strengthen its network infrastructure and competitive positioning in the market.
“The conversion of spectrum dues to equity will bring down Vi's overall net debt by nearly 18%. We estimate Vi’s spectrum dues (for pre-2021 spectrum) that are payable over FY26/27/28E could reduce from Rs 110/250/250 billion (`11,000/25,000/25,000 crore) to nearly `5/50/150 billion (`500/5,000/15,000 crore), implying over Rs 400 bn (Rs 40,000 crore) of cash flow relief over the next three years...note that annual spectrum payments of about Rs 22 billion (Rs 2,200 crore) for post-2021 spectrum plus annual AGR payments of Rs 165 bn (Rs 16,500 crore) would remain payable," it said.