Vi Receives Rs 2,075 Cr Funding from Birla Group

Debt-ridden telecom operator Vodafone Idea (Vi) has received a glimmer of hope with the board’s approval to raise Rs 2,075 crore from its promoter, the Aditya Birla Group. This capital infusion forms a critical part of Vi’s ambitious Rs 45,000 crore fundraising plan aimed at tackling its crippling debt and bolstering operations.

Aditya Birla Group to the Rescue

The funds will come through the issuance of new equity shares to Oriana Investments Pte. Ltd., an Aditya Birla Group entity. The issuance involves 1,395,427,034 shares with a face value of Rs 10 each, priced at a premium of Rs 4.87 per share, for a total of Rs 2,075 crore. However, this is just the first step. Shareholder approval is still required, and an extraordinary general meeting (EGM) is scheduled for May 8, 2024, to seek their green light.

Part of a Larger Survival Strategy

The Rs 2,075 crore infusion is merely the first tranche of Vi’s multi-pronged fundraising strategy. The company is aiming to secure a total of Rs 45,000 crore through a mix of equity and debt. This capital injection is crucial for Vi’s survival and its ability to compete effectively in the hyper-competitive Indian telecom sector dominated by Reliance Jio and Bharti Airtel.

Increased Flexibility for Future Fundraising

Looking beyond the immediate infusion, Vi’s board also approved a significant increase in the company’s authorized share capital. This jumps from Rs 75,000 crore to a staggering Rs 1,000,000 crore (Rs 1 trillion). The increased authorized share capital is divided into Rs 95,000 crore equity share capital and Rs 5,000 crore preference share capital. This move provides Vi with greater flexibility to raise additional funds in the future, if necessary.

But the Mountain of Debt Looms Large

Despite these developments, Vi’s financial situation remains precarious. Here’s a deeper look at the significant challenges the company faces:

• Crippling Government Debt: A staggering over 90% of Vi’s total gross debt of Rs 2.15 trillion is owed to the government as spectrum dues. The company’s bank debt, at less than Rs 4,500 crore, pales in comparison.
• Upcoming Government Dues Damocles : With the moratorium on regulatory dues ending in FY26, a financial storm is brewing for Vi. The company will be obligated to make substantial payments to the government, with estimates suggesting around Rs 28,000 crore in FY26 and exceeding Rs 41,000 crore annually from FY27 onwards.
• Potential Funding Gap: Analysts warn of a potential funding gap for Vi from FY27 onwards. Based on the company’s current free cash flow, declining market share, and the need for further fundraising, the gap could be as high as Rs 30,000 crore annually.

Signs of Improvement, But Uphill Battle Ahead

There are some slivers of hope for Vi. The company’s net loss for the October-December quarter narrowed to Rs 6,986 crore, compared to Rs 8,738 crore in the previous quarter. Additionally, revenue from operations witnessed a slight year-on-year increase due to an improved subscriber mix, growth in 4G subscribers, and increased entry-level tariffs.

Vi’s future hinges on its ability to effectively utilize the funds from Aditya Birla Group, aggressively reduce its massive debt burden, significantly improve operational performance, and potentially raise additional capital. The company faces a monumental task, but this recent development provides a much-needed lifeline in its fight for survival.

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