Vodafone lenders worried about the fate of loans as telco seeks more debt

Mint

04-07-2025

Mumbai: Lenders to Vodafone Idea Ltd are worried that the telecom operator which is trying to borrow ₹35,000 crore more may prioritize paying its government debts over its new bank loans, a person aware of the matter said.
Their concern centres around the company's ability to sustain loan repayments on the proposed loans if Vodafone Idea has to pay the adjusted gross revenue (AGR) dues to the government. The weakest player in India's telecom landscape has been steadily posting losses since FY17.
On 19 May, the Supreme Court rejected petitions from Bharti Airtel Ltd and Vodafone Idea to waive some of the dues linked to their AGR. Vodafone Idea had sought a waiver on interest, penalty, and interest on penalty crossing ₹45,000 crore on the ₹83,400 crore pending AGR dues. The four-year moratorium on these payouts ends in September.
In May, the operator told the Supreme Court that it would not be able to operate beyond the current financial year without bank funding.
According to another person, whether banks approve the fresh loan proposal depends on promoter Aditya Birla Group injecting additional equity or providing a backstop to assure banks in case the telco's health worsens in future.
To be sure, last financial year, the telco raised ₹4,000 crore in a preferential issue of shares to promoters, with Aditya Birla Group putting in ₹2,100 crore and Vodafone Group ₹1,900 crore.
'The company wants to raise ₹35,000 crore from banks; but for that, the promoters have to put in more equity or produce a corporate guarantee from a strong group company," said the first person cited above. 'In such a situation, if there is no additional skin in the game, bankers are not willing to put in more money."
The second person said discussions between Vodafone Idea and a consortium of banks have been underway even before the AGR case returned to court. The person said there were a few virtual meetings between the bankers in the consortium and the management of Vodafone Idea a few months back, where lenders raised the two contentious issues on additional equity and promoter guarantee.
'This information is incorrect, and no such proposal is on the table," a spokesperson for Vodafone Idea said, without saying which proposal was being referred to.
The spokesperson added: 'We remain in active discussions with lenders and will provide an update at the appropriate time."
Also Read: Sword of Damocles hangs over Vodafone Idea's bank guarantees
'The position of lenders has not changed; the AGR setback in the Supreme Court has only made it worse," said the second person cited above.
According to Care Ratings, bankers to Vodafone Idea include State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, and Axis Bank. While some have given term loans, others have provided bank guarantees. Its bank debt stood at ₹2,330 crore as on 31 March, as against ₹4,040 crore a year ago, as per disclosures made to analysts on 2 June.
Email sent on Wednesday to the State Bank of India—Vodafone Idea's largest lender—remained unanswered.
What complicates the matter is the government's decision not to convert more of the company's dues to equity. Following two rounds of such conversions, the government now owns a 49% stake in Vodafone Idea. Promoters Aditya Birla Group and Vodafone Group held a 25.6% stake, while the remaining are public shareholders.
On Wednesday, telecom minister Jyotiraditya Scindia told CNBC TV18 in an interview that the government's stake in the telco 'will not go beyond the current 49%".
While banks seem reluctant, the company is actively chasing loans. Akshaya Moondra, chief executive officer, Vodafone Idea told analysts on 2 June that the 'primary source of fundraising remains bank borrowing", which the telco is working on.
'The conversion of government dues to equity, along with the upgrade in the credit rating, are facilitating factors for us to take those discussions forward. Post the conversion, the engagement has started again seriously," Moondra told analysts.
While the first round of equity conversion took place in 2023, the latest one happened in April, taking the total government stake to 49%. In May, Vodafone Idea's board approved raising ₹20,000 crore through a follow-on public offering (FPO), private placement, or other permissible mode.
Also Read: Two months after second lifeline, Vodafone Idea again raises survival fears
Analysts believe that raising debt is crucial to the telco's expansion plans.
'...we believe the company's network investments remain contingent on debt raise which, in turn, is dependent on continued support/AGR relief from the Government of India. Stabilization of the subscriber base, along with further relief from the government of India remains imperative for Vi's long-term survival," analysts at Motilal Oswal Financial Services said in a note to clients on 2 June.
The tussle over AGR has stretched out over almost 20 years. On 17 April, Vodafone Idea, which has 198.2 million mobile subscribers, submitted a representation to the government, seeking a waiver of interest, penalty and interest on penalty on its AGR dues.
The telco said the government's AGR liability demand stood at ₹83,400 crore as of March end, with an annual instalment of approximately ₹18,000 crore due starting 31 March 2026 for the next six years. In comparison, Vodafone Idea generated ₹8,400-9,200 crore cash annually in the last three years.