Vodafone Idea Contacts Pension Funds to Raise $1Bn to Stay Afloat

Vodafone Idea (Vi) approached pension funds to raise around $1 billion to keep its India operations afloat. These include Norway’s Government Pension Fund Global and three Canadian funds.

Vodafone Idea's Liquidity Issues

One of the people privy to the matter listed out the pension funds, which are as follows.

1. Government Pension Fund Global, Norway
2. Canada Pension Plan Investment Board (CPPIB)
3. Caisse de Dépôt et Placement du Québec (CDPQ)
4. Ontario Teachers’ Pension Plan (OTPP)

The person said that the telco wants a deal which will include debt convertible into equity. Notably, Vodafone Idea is also considering reaching out to an Australian pension fund. The telco also pulled in BofA Securities as investment banker.

The person cited above also mentioned the telco's need for a long-term investor. Incidentally, that will allow the telco time to turn around its loss-making operations.

The development comes as attempts to raise capital through private equity funds haven’t succeeded. Last month, Vi reached out to a new set of US-based private equity firms, including KKR and Carlyle Group. This was in a bid to secure $2-2.5 billion via convertible instruments.

Back then,  fundraising talks with an Oak Hill-led consortium went sour, which led to the aforementioned development.

A Spanner in the Works?

An investment banker with direct knowledge of the matter mentioned the cautious mood of the investors. This is because Vodafone Idea need long-term capital to continue operating in the Indian telecom space. However, private equity investors with small investment horizon were a bit cautious about this, the banker said.

The person cited above noted the flexibility of pension funds in this situation. As these funds can wait for more than a decade, a deal makes sense for everyone involved, the person noted.

Another person aware of the development said the telco is exploring several options. Moreover, Vi can also float a separate vehicle and allow more than one pension fund to invest through that. The person highlighted the idea behind the move, "to raise debt through pension funds but also give them an option towards partial equity conversion at a later stage”.

Funding the Telco

The telco plans to raise an overall Rs 25,000 crore through a mix of debt and equity. This move is a step in that direction.

Nitin Soni, Senior Director, Fitch Ratings', pointed out the shortcomings of the telco. He said that their “current cash generation is insufficient to fund its interest costs, therefore debt servicing is a huge challenge for the company”. He also said that the telco “needs to raise tariffs to improve its cash generation".

Then again, the telco risks losing an already slipping ground to Reliance Jio and Bharti Airtel.

Crucially, Vi needs cash immediately, to strengthen its 4G operations in 16 priority circles. Apart from that, it has to arrest its steady loss of subscribers and also clear statutory dues to the government.

Notably, it has Rs 50,400 crore of adjusted gross revenue (AGR) dues payable to the government. This amount is payable in 10 annual instalments till March 31, 2031. Once the moratorium ends, annual spectrum payment instalments of Rs 15,500 crore will also commence from FY23.

Furthermore, things are looking none the better in terms of revenue streams. In the December quarter, Vi’s revenue rose less than 1% on quarter. In comparison, Airtel’s growth was at 6.8% and Reliance Jio’s at 5.8 % growth. Its average revenue per user (ARPU) at the end of December was at Rs 121. Comparatively, Airtel’s ARPU stood at Rs 166 and Reliance Jio’s at Rs 151.