ECONOMIC TIMES
Vodafone Idea (Vi) has approached pension funds including Norway’s Government Pension Fund Global and three Canadian ones such as Canada Pension Plan Investment Board (CPPIB) to raise around $1 billion (Rs 6,000-7,000 crore) to keep its flagging India operations afloat, people familiar with the matter told Economic Times.
“Vodafone Idea has reached out to the Government Pension Fund Global in Norway and Canada Pension Plan Investment Board (CPPIB), Caisse de Dépôt et Placement du Québec (CDPQ) and Ontario Teachers’ Pension Plan (OTPP),” one of the people told Economic Times. “The thought process for now is that this would not be a direct equity deal, but debt which is convertible into equity.”
The company is also considering reaching out to an Australian pension fund.
The cash-strapped India telecom joint venture between the Aditya Birla Group and UK’s Vodafone Group has roped in BofA Securities as investment banker.
The Aditya Birla Group, Vodafone Idea, the Norwegian fund, CDPQ and BofA Securities did not respond to ET’s queries. The Vodafone Group, CPPIB and OTPP declined to comment.
“The reason for reaching out to the pension funds is that the company wants an investor that would have patience to stay on for a longer period,” giving the telco time to turn around its loss-making operations, the person told Economic Times . He said that the “structure of raising capital is fluid” at this point. The development comes as attempts to raise capital through private equity funds haven’t succeeded.
ET reported last month that Vi had reached out to a new set of US-based private equity firms, including KKR and Carlyle Group, to secure $2-2.5 billion via convertible instruments after fundraising talks with an Oak Hill-led consortium went sour.
“Vodafone Idea will need long-term capital if they want to continue operating in the Indian telecom space but private equity investors who have three-five years of investment horizon are a bit cautious about this,” said an investment banker with direct knowledge of the matter. “Most pension funds on the other hand can wait for 10 years for a return and that makes sense for both.”
Another person aware of the development told Economic Times the company is exploring several options and could also float a separate vehicle and allow more than one pension fund to invest through that.
“The talks have just begun and there are multiple options,” he told Economic Times. “The idea is to raise debt through pension funds but also give them an option towards partial equity conversion at a later stage.”
The funding is part of the telco’s stated plans to raise an overall Rs 25,000 crore through a mix of debt and equity.
“Vodafone Idea’s current cash generation is insufficient to fund its interest costs, therefore debt servicing is a huge challenge for the company,” Nitin Soni told Economic Times, Senior Director at Fitch Rating , highlighting the urgency over raising funds. “Vi needs to raise tariffs to improve its cash generation. However, if it improves tariffs, it runs the risk of further losing market share to Reliance Jio Infocomm and Bharti Airtel.”
The company needs cash urgently to strengthen its 4G operations in 16 priority circles and arrest its steady loss of subscribers and also clear statutory dues to the government. It has Rs 50,400 crore of adjusted gross revenue (AGR) dues payable to the government over 10 annual instalments through March 31, 2031. Annual spectrum payment instalments of Rs 15,500 crore will commence from FY23, once the moratorium ends, estimates Ambit Capital.
In the December quarter, Vi’s revenue rose less than 1% on quarter, compared with Airtel’s 6.8% and Jio’s 5.8 % growth. Its average revenue per user (ARPU) at the end of December was at Rs 121, lagging behind Airtel’s Rs 166 and Jio’s Rs 151.