“Vodafone Idea has reached out to the Global Government Pension Scheme Investment Fund in Norway and Canada (CPPIB), Caisse de Dépôt et Placement du Québec (CDPQ) and the Ontario Teachers’ Pension Scheme (OTPP),” said one of the people. “The thinking process for the time being is that this would not be a direct equity deal, but a debt that can be converted into equity.”
The company is also considering reaching out to the Australian pension fund.
India’s cashless telecommunications joint venture between Aditya Birla Group and UK Vodafone Group has ridden BofA Securities as an investment banker.
Aditya Birla Group, Vodafone Idea, Norwegian fund, CDPQ and BofA Securities did not respond to ET queries. Vodafone Group, CPPIB and OTPP declined to comment.
“The reason for reaching out to the pension funds is that the company wants an investor with patience to stay on for longer,” giving the telco time to turn around its loss making operations, said the person cited above . He said the “capital raising structure is volatile” at this point. The development comes as attempts to raise capital through private equity funds have not been successful.
ET reported last month that Vi reached out to a new set of US private equity firms, including KKR and Carlyle Group, to secure $ 2-2.5 billion through convertible instruments after fund-raising negotiations with a consortium led by Oak Hill going sour.
“Vodafone Idea will need long-term capital if it is to continue operating in the Indian telecom space but private equity investors with three to five years investment horizon are a bit wary of this,” says an investment banker with direct knowledge for the weight. “Most pension funds on the other hand can wait 10 years for a return and that makes sense for both.”
Another person aware of the development said the company was exploring several options and could also float a separate vehicle and allow more than one pension fund to invest through it.
“The talks have just begun and there are several options,” he said. “The idea is to raise debt through pension funds but also give them an option towards partial equity conversion at a later date.”
The funding is part of telco’s stated plans to raise Rs 25,000 crore overall through a mix of debt and equity.
“Vodafone Idea’s current cash productivity is not sufficient to finance its interest costs, so debt servicing is a huge challenge for the company,” said Fitch Ratings senior director Nitin Soni, highlighting the urgency for fundraising. “Vi needs to raise tariffs to improve its cash production. However, if it improves tariffs, it runs the risk of further losing market share to Reliance Jio Infocomm and Bharti Airtel. ”
The company urgently needs cash to strengthen its 4G operations in 16 priority cycles and arrest its consistent loss of subscribers and also clear statutory duties to government. It has Rs 50,400 crore of adjusted gross revenue payments (AGR) payable to the government over 10 annual installments through March 31, 2031. Annual spectrum payment installments of Rs 15,500 crore will start from FY23, once per year the moratorium will end, Ambit Capital estimates.
In the December quarter, Vi’s revenue rose less than 1% on a quarter, compared to Airtel’s 6.8% and Jio’s growth of 5.8%. Its average revenue per user (ARPU) at the end of December was Rs 121, lagging behind Airtel’s Rs 166 and Jio’s Rs 151.