Vodafone Idea Urgently Seeks ₹25,000 Cr Lifeline from PFC & REC to Cover 3-Year Costs

Vodafone Idea has reached out to state-owned lenders Power Finance Corporation (PFC) and REC Ltd to help secure loans for medium-term funding, sources say. Senior leaders from Vodafone Idea and its parent company, Aditya Birla Group (ABG), recently met with officials from PFC and REC to discuss bridging a funding gap of ₹25,000 crore. This money is needed to cover the company’s capital expenses and maintenance costs for the next three years.

Although the telecom company hasn’t submitted a formal proposal yet, and the lenders haven’t actively considered the plan, talks are in progress.

Credit Rating: BB+ with Stable Outlook

While Vodafone Idea’s financial situation is a concern for the lenders, the company has assets that could be used as security for the loans. On June 4, Vodafone Idea informed the stock exchanges that its long-term bank facility rating had improved to BB+ with a stable outlook, indicating a moderate risk of default. Previously, it was rated B+, which suggested a higher risk of default.

The company is also in talks with the State Bank of India (SBI) for partial funding. SBI may lead a consortium of lenders to provide most of the required funding. Telecom, being classified as an infrastructure sector, allows NBFCs like PFC and REC to provide loans to companies in this sector, in addition to power and renewable energy projects.

Officials from ABG, PFC, REC, and SBI did not respond to queries.

Business Metrics and Financial Struggles

Vodafone Idea Ltd is jointly owned by Aditya Birla Group and the UK’s Vodafone Group, with the Indian government holding about a 24% stake. The telecom company’s board announced in February a plan to raise ₹45,000 crore through debt and equity. It managed to raise ₹18,000 crore through a follow-on public offer in April.

However, a September 6 report from Goldman Sachs warned of a potential 83% drop in Vodafone Idea’s stock price, causing the stock to fall by 8% to ₹13.83 on the BSE. On Monday, it closed at ₹13.2, down 1.2%.

Debt Burden and Future Prospects

Vodafone Idea carries a debt burden of ₹2 lakh crore, which includes dues to the government. With 200 million subscribers, the company still hasn’t launched 5G services. Some of the government’s debt may need to be converted into long-term bonds to ensure the company’s financial stability.

Earlier, Vodafone Idea proposed converting some dues into equity, as it did in February 2023 when the government converted ₹16,000 crore worth of interest on adjusted gross revenue (AGR) dues into a 33% equity stake, which has since decreased to 24% after the public offer.