Credit rating upgrade to boost Vodafone Idea ₹25k-crore debt raising efforts: Citi

Vodafone Idea’s improved credit rating to an investment grade BBB- post the government’s conversion of Rs36,950 crore statutory debt into equity could boost the loss-making telco’s prospects of concluding its pending Rs25,000 crore debt raise, Citi Research said in a report.

“The investment-grade credit rating should, in our view, provide a meaningful boost to VI’s efforts to complete its long-delayed bank debt raise, as this is typically one of the key requirements for banks to provide lending,” Citi Research said.

“We believe the recent equity conversion by the government and the subsequent credit rating upgrade to investment-grade are two material positives for VI, increasing the likelihood of the company completing its pending Rs25000 crore debt raise,” the brokerage house said.

It added that a successful fund raise would also be a key catalyst for Indus Towers by lifting concerns surrounding new tenancies from VI and its future cash flow situation.

The brokerage said that following the recent equity conversion, VI’s annual dues to the government (spectrum + adjusted gross revenue) over FY26, FY27 and FY28E stand reduced to around Rs19000 crore, Rs23000 crore and Rs32000 crore from around Rs30000 crore, Rs 43000 crore and 43000 crore, respectively.

“Assuming VI were to succeed in closing out its Rs25000 crore bank debt funding, which is crucial for the company’s planned capex, we estimate no cash shortfall in FY26E but a potential shortfall in FY27E (primarily due to the high AGR amount payable of Rs16500 crore per annum). VI remains in discussions with the government for potential relief on the latter,” Citi Research said.

On Friday, ratings agency ICRA Ltd assigned an improved BBB- credit rating to Vi’s long-term fund facilities, compared to the previous BB+ assigned by CARE Ratings in June 2024.

“With the company now coming back into the investment grade rating, which is the requirement for the banks to provide funding, the debt funding discussions should now progress in the right direction,” a Vi spokesperson said in a written response to ET.

Raising debt from banks is critical for Vi to execute its Rs 50,000-55,000 crore capex plans over the next three years for expanding 4G operations in priority circles and rolling out 5G in key cities. The telco needs to quickly expand its 4G services as it looks to narrow network coverage gaps with bigger rivals Reliance Jio and Bharti Airtel, and arrest customer losses.

Global ratings agency, Fitch, says on its website that `BBB’ ratings indicate that the expectations of default risk are low and the capacity for payment of financial commitments is adequate.

Earlier this month, the government decided to convert Rs 36,950 crore of Vi’s outstanding spectrum dues into equity shares, which will increase its stake in the telco to around 49% from 22.6% previously.

Subsequently, Vi’s board also cleared the conversion of these spectrum dues into equity.

Till now, it has raised Rs 26,000 crore in equity.