In a move critical for its survival, Vodafone Idea (Vi) received a much-needed shot in the arm from its promoter, the Aditya Birla Group. The company’s board, on April 6, 2024, approved a proposal to raise Rs 2,075 crore through a preferential share issue to Oriana Investments Pte. Ltd., an Aditya Birla Group entity. This capital infusion is a significant step forward for Vi’s ambitious Rs 45,000 crore fundraising plan designed to tackle its massive debt burden of Rs 2.15 trillion and fuel further operations. Notably, over 90% of this debt, amounting to nearly Rs 1.94 trillion, is owed to the government as spectrum dues. Vi’s current bank debt sits at a comparatively modest Rs 4,500 crore.
Preferential Share Issue and Upcoming Shareholder Vote
The preferential share issue will involve issuing 1,395,427,034 equity shares with a face value of Rs 10 each. To make the deal attractive, these shares will be offered at a premium of Rs 4.87 per share, bringing the total issue price to Rs 14.87 per share. However, the final say lies with Vi’s shareholders, who will vote on the proposal at an Extraordinary General Meeting (EGM) scheduled for May 8, 2024.
Increased Share Capital for Future Flexibility
Vi’s board also made a strategic move by increasing the authorized share capital of the company from the existing Rs 75,000 crore to Rs 1 trillion. The new capital structure will be divided into Rs 95,000 crore equity share capital and Rs 5,000 crore preference share capital. This expansion provides Vi with the option to raise additional capital through equity issuance in the future, if necessary.
Looking Ahead: A Balancing Act Between Debt and Growth
While the Aditya Birla Group investment and increased share capital offer some hope, Vi’s financial situation remains precarious. The looming debt burden, particularly the upcoming government dues of nearly Rs 28,000 crore annually starting from FY26 and exceeding Rs 41,000 crore from FY27 onwards, casts a long shadow. Analysts, considering Vi’s weak cashflow and declining market share, predict a potential funding gap of Rs 30,000 crore per year from FY27 onwards.
Vi’s success hinges on its ability to navigate this challenging landscape. The additional capital can be used to reduce debt, improve network infrastructure, and invest in new technologies like 5G. However, Vi must also focus on improving its operational efficiency, expanding its subscriber base, and delivering innovative services to compete effectively with Reliance Jio and Bharti Airtel.
The coming months will be crucial for Vi. The company’s long-term survival will depend on its ability to execute a multi-pronged strategy that addresses both its debt burden and its need for sustainable growth.
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