India's third-largest service provider, Vodafone Idea, began a massive fundraising process earlier this month to clear off its debt and make investments to improve network performance and coverage.
The company's board approved raising a total of INR145 billion (US$1.9 billion) from its backers, Vodafone Group and Aditya Birla Group, and external investors.
The plan is to raise INR45 billion ($589 million) by raising a preferential share issue at INR13.30 ($0.17). This is likely to be cleared by the end of March.
However, the company was expecting to raise INR10 billion ($131 million) from investors, which is now likely to happen during the next financial year. India's financial year starts in April and runs until March.
Media reports suggest that Vodafone Idea has asked the government to hasten the conversion of interest on deferred adjusted gross revenue (AGR) dues into government equity since this will help it raise funds from external investors.
Vodafone Idea had a debt of INR1.97 trillion ($25.81 billion) and a cash balance of just INR15 billion ($196 million) at the end of December 2021. A major part of this is related to AGR dues and other penalties the company owes to the government.
Earlier in 2022, Vodafone Idea announced that it had taken up the government's offer to convert part of these pending dues into government equity.
This made the government the largest shareholder in the company, with a 35.8% stake. Consequently, this brings down the holdings of Vodafone Group from the current 44.39% to 28.5%. Aditya Birla Group's stake in the company will decrease from 27.66% to 17.8%.
However, this is according to Vodafone's calculations - and the government is yet to confirm that it agrees.
This impacts the company's ability to attract new funding since any prospective investor would like to be certain of the government's holdings and its role in running the company. Vodafone Idea is believed to be in touch with several investors, including Apollo Global Management and Carlyle.
Vodafone Idea is also considering returning bank guarantees withheld by the Department of Telecommunications (DoT) as security against the AGR payments.
If this is approved, the company will acquire around INR150 billion ($1.96 billion), considerably improving its financial health. The company has also appointed SBI Capital Markets to restructure loans that it needs to repay over the next four years.
While the company's problems were addressed to an extent when it decided to bring in the government as the largest shareholder, it still needs to find an investor to be entirely out of the woods.
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— Gagandeep Kaur, contributing editor, special to Light Reading