After Vodafone Idea Writes DoT, Lenders Write Finance Ministry for Relief

On Friday, a consortium of lenders to Vodafone Idea wrote to the finance ministry to intervene and provide some relief. The consortium expressed its concern over the telco's survival as it faces dwindling cash balances.

Vodafone Idea Risking Financial Crisis

The company posted a loss of ₹6,985.1 crore for Q4 of the last fiscal. This loss was more than the ₹4,540.8 crore it recorded in the previous quarter. The telco cited one-time expenses and continuing high depreciation, amortisation and finance costs and subscriber erosion for the losses. It had to pay the upfront payment for the spectrum renewals at the March auction, accounting for the one-time expense. Moreover, the telco had seen subscriber loss for the past year and a half; it only recorded positive growths in February and March.

The loss of IUC has hit the telco hard as well; along with predatory pricing it has meant that the company is functioning on lower than costs tariff.

On 25th June, the telco had written to the DoT, seeking a moratorium on spectrum payments. The telco has to pay ₹8,292 crore on April 9, 2022 in spectrum payments. However, it has said that it isn't generating enough cash from operations. Its enormous AGR obligations are eating away at liquidity, worsening the situation.

Lenders Worried About Vodafone Idea's Survival

A senior banker aware of the developments said, "last week lenders have written to the finance ministry and requested for relief, among which was deferment of spectrum dues". They further added, "banks are worried a lot as they fear that no relief from the government could force the company into bankruptcy. They (Vodafone Idea) won’t be in a position to pay their dues."

Banks such as SBI, PNB, IDFC, Yes Bank, IndusInd Bank and HDFC Bank are the leading lenders to Vodafone Idea. As of last year, SBI had loaned ₹11,200 crore, while PNB had advanced ₹1,000 crore. On the other hand, private entities like IndusInd Bank and ICICI Bank have lent Vodafone Idea ₹5000 Crore and ₹1700 Crore, respectively.

These banks have expressed their concern time and time again, fearing the telco will fall behind on payments.

Fundraising Plans Deterred by Poor Sector Health - Telco to DoT

Vodafone Idea has also warned the DoT of the risks to viability. It had said that its viability depended on whether it can raise funds, negotiate with lenders for support, refinance debt and monetize assets. In the letter to DoT, the telco told the secretary Anshu Prakash that because of telecom sector's poor health, it has not been able to raise ₹25,000 crore via a mix of debt and equity, a plan it had announced last September.

It also mentioned that it has been unable to raise any money because investors are wary of putting money into the sector. The company said that investors don't want to invest in a sector which has "below-the cost" consumer tariffs.