Risks of Vodafone Idea’s financial profile worsening are receding: Lenders

With the government recently announcing a relief package to salvage the troubled telecom sector, lenders of Vodafone Idea Ltd (VIL) believe that the risks of deterioration in the company’s financial profile have receded, thereby eliminating the need to hike the interest rate hike for now.

Along with infusion of funds (equity) into the telecom service operator, lenders expect promoters to work on tariff revision in the industry as well.

Bank executives said they have begun a modelling exercise on the financial profile that is likely to emerge (for Vodafone-Idea) from the government’s package. The package has provided relief to the company and could have created some room for using part of current cash-flows to make payments for NCDs.

In September 2021, the government cleared a package allowing telcos a moratorium on the payment of adjusted gross revenue (AGR) dues as well as spectrum payments prospectively for the next four years.

Under the relief package hammered out by the government, the company is required to make the first tranche of AGR payments in March 2022, while the spectrum payments are to resume from April 2022.

According to an official of a Mumbai-based large public sector bank, “With everything worked out (govt package) and the capital raising that is likely to happen, things are expected to be under control now.”

The company continues to report net losses and reported a loss of Rs 7,319.10 crore in Q1FY22. According to rating agency Brickwork Ratings the company’s net worth has been wiped out on account of the continued losses and turned negative.

The company’s debt continues to remain high and its current financial flexibility continues to remain strained. Its net debt stood at Rs 1,90,670 crore at the end of June 2021.

The EBITDA, which has shown improvement in the last few quarters, continues to remain lower than the company’s financial cost and the company’s liquidity position is stretched.

VIL has debt obligations of more than Rs 7,000 crore maturing in Q3-Q4 FY22. In August 2021, the agency had downgraded its debentures from “BB-” to “B”.

The company’s Average Revenue Per User (ARPU) has come down significantly in the last two quarters from the levels of Rs 120 in Q2FY21 and Q3FY21 to Rs 107 in Q4FY21 and Rs 104 in Q1FY22, respectively. The fall in the ARPU has also affected the company’s revenue and profitability at the EBITDA level.

A public sector bank official said that out of the over Rs 40,000 crore that the company (VIL) owed, more than half was non-fund based limits (guarantees given for spectrum etc), a requirement that will be reduced now.

The official said that once guarantees are returned, some parts will turn into fund-based limits for VIL’s expansion plan. He further said that worries that the government will encash bank guarantees were a thing of the past with a moratorium of four years on government payments.

Another executive with private bank said there have been statements about promoters putting in money (equity). This needs to happen soon as the company, which is financially constrained, has upcoming payments on debentures maturing through the second half.