Airtel, Voda-Idea optic fibre joint venture on hold

The proposed optic fibre joint venture between Bharti AirtelNSE 0.58 % and Vodafone Idea has possibly been put on the back burner, given the divergent funds requirements of the two telcos.

While Vodafone Idea needs to monetise its fibre network assets quickly to stave off immense financial pressure, Airtel has reduced its debt to manageable levels.

“Under severe financial pressure with huge debt, Vodafone Idea needs to urgently monetise its fibre assets,” a senior telecom executive briefed on the merger talks told ET. Airtel has no such urgency.

Vodafone and Airtel recorded a net loss of Rs 4,873 crore and Rs 2,866 crore, respectively, in the quarter ended June. While Vodafone Idea’s revenue fell sequentially, Airtel’s grew.

ET had reported in its June 12 edition that the proposed merger of Vodafone Idea’s 156,000 route km of optic fibre and Airtel’s 246,000 km would have created a network of over 400,000 route km, exceeding Reliance Jio Infocomm’s 300,000 km. The combined optic fibre entity would be valued at Rs 35,000-40,000 crore.

Vodafone declined to comment on the state of discussions, while a query sent to Bharti Airtel remained unanswered.

“Airtel is far better off with debt at manageable levels owing to the recent Rs 25,000 crore rights issue, the Africa IPO and previous Infratel stake sales and a return to revenue growth and can thus wait until it finds the right investors and valuation,” the person said.

“Bharti’s net-debt-to-EBITDA has fallen to 3.4x post these de-leveraging initiatives,” brokerage firm Credit Suisse said in an internal note last week.

Vodafone’s net finance costs increased by 23% in the quarter ended June. The company had raised Rs 25,000 crore through a rights issue in May.

Vodafone Idea recently announced a leadership change in India, with Ravinder Thakkar taking over from Balesh Sharma. Thakkar has been tasked with accelerating the integration of Vodafone and Idea CellularNSE -0.87 % and expanding its 4G network, which lags rivals Reliance Jio Infocomm and Bharti Airtel. The company recorded a 4.3% sequential fall in quarterly revenue to Rs 11,270 crore at the end of June, hurt by subscribers leaving the network due to the company’s minimum recharge plans.

“We expect Vodafone Idea to be free cash flow negative for the foreseeable future, with net-debt-to-EBITDA at about 11x even in FY21,” Credit Suisse said in a note, adding the company’s cash balance could reach very low levels by September 2020.

“We note that Vodafone Idea has announced its intent to monetise fibre assets, which, if completed, could provide some more headroom to the company,” it added.

Vodafone has about Rs 4,000 crore in annual debt repayment obligations over the next two years and spectrum-related payments of about Rs 12,000 crore in the next 12 months.