Vodafone Idea stock falls 52% in one year as market fears if the telco will survive

Telecom operator Vodafone Idea (Vi) may struggle to recover financially unless its owners, UK-based Vodafone Plc and India's Aditya Birla Group, inject new equity by January or February, according to news reports. The debt-ridden Vodafone Idea and ATC Telecom Infrastructure have mutually extended the last date for the preferential issue of optionally convertible debentures (OCDs) to ATC to 28th February, 2023 or such later date as may be mutually agreed.

In a meeting on December 6, VIL said that the company will seek a fresh nod from shareholders to raise Rs 1,600 crore from ATC Telecom Infrastructure, as the issuance of OCDs has not been completed within the stipulated time since the last approval.

The shares of Vodafone Idea Ltd have slipped as much as 51.83 percent in the last one year as worries ensue in the market regarding the telco's survival.

The telco needs to raise over $3 billion in the next 6-12 months to meet short-term liquidity pressures, given that it needs to quickly clear sizeable dues to tower companies (Indus and ATC), and also invest in 4G/5G capex in the near term to stay competitive vs peers, according to a report by ET quoting Nitin Soni, senior director (corporates) at Fitch.

The report said that according to government officials, the financial recovery for the telco would be tough until its promoters make a fresh equity infusion by January-February.

The company is awaiting for the government to convert its debt to equity. The Union Cabinet had approved the conversion of Vodafone Idea's adjusted gross revenue (AGR) dues — and the interest thereon — to equity last September.

"We have secured all necessary approvals for converting dues into equity. SEBI has granted approval for equity conversion; the (proposal received a final nod from the Finance Ministry. The DoT is deliberating on the issue," a government official had earlier told CNBC-TV18.

Vodafone Idea' AGR dues stand at Rs 16,130, and once the government converts the interest on AGR dues into equity, the debt on Vodafone Idea's books comes down by Rs 16,000 crore, and the government will be holding close to about a 33 percent equity stake.

Only once the government converts its stake into equity will external funding be possible for the Rs 2.2 lakh crore debt-ridden telecom conglomerate. Vodafone Idea is seeking to raise about Rs 10,000 crore of equity funds and Rs 10,000 crore of debt from banks to fund its 5G plans, but this has been on hold because of a lack of clarity on if and when the government will convert that equity.

In September, according to the data released by Telecom Regulatory Authority of India (TRAI), VIL's growth in subscribers declined by 1.58 percent. Unlike its peers, Bharti Airtel and Reliance Jio, VIL doesn't yet have a proper plan in place for the introduction of 5G.