Vodafone Group Plc is in talks to sell up to a 5% stake in tower firm Indus Towers to Bharti Airtel, and use the proceeds to plough into Vodafone Idea Ltd, as the self-mandated March deadline for the loss-making Indian telco to raise funds from external investors draws near.
“The two sides are in discussions and things could move very fast in the next few weeks,” a person aware of the development told ET.
Indus Towers closed 0.4% lower at Rs251.20 on the BSE Wednesday. At the current price, a 5% stake in India’s largest telecom tower company could fetch Vodafone Group over Rs 3,300 crore. Vodafone Idea closed 1.6% lower at Rs10.72 while the Airtel stock ended up 0.6% at Rs704.25.
The Vodafone Idea (Vi) management in a recent investor call pegged March-end as the deadline for raising capital to finance its operations.
Promoters of Indus Towers, Bharti Airtel and UK’s Vodafone Group, currently hold 41.73% and 28.12% share in the company, respectively. Vodafone Group and the Aditya Birla Group (ABG) own 44.39% and 27.66%, respectively in Vodafone Idea as its co-promoters.
Emails sent to Bharti Airtel failed to elicit a response while Vodafone Group declined to comment.
Incidentally, Airtel has recently announced that it would raise Rs7,500 crore via debt in one or more tranches. Of this, the telco is likely to raise up to Rs 5,000 crore shortly through rupee-denominated bonds, ET reported in its February 22 edition.
Market analysts were surprised at the need for the latest fundraising as the telco had recently tied up a $1 billion investment from Google. Besides, it comes a few months after a Rs 21,000-crore rights issue, of which the carrier so far raised around Rs 5,247 crore in the first tranche. The balance sum will be garnered once the telco decides to make the two additional calls.
Fund infusion by Vodafone Idea’s promoters is key to the cash-strapped telco raising funds from external investors. Along with Vodafone Group, ABG chairman Kumar Mangalam Birla is also expected to invest around $200 million of his own capital into Vodafone Idea.
Vi, with a cash balance of Rs 1500 crore and net debt of Rs1.97 lakh crore at December-end, has been in talks with a slew of private equity players such as US-based Apollo Global and Carlyle for around $1 billion in equity and debt funding, as it looks to turn around operations. The company’s net loss for the fiscal third quarter ended December 31 widened to Rs 7,234.1 crore from Rs 7,144.6 crore in the year earlier as operating and interest expenses rose. It lost a further 5.8 million users to end December with just over 247 million subscribers.
Analysts say the telco needs an immediate cash infusion to build on the gains of the recent tariff hikes to back up the positive impact of a reforms package announced by the government last September to be able to compete in the market, arrest subscriber losses to its rivals Reliance Jio and Bharti Airtel, and revive its business.
Besides the capital raising efforts, Vodafone Idea is also considering the sale of overseas convertible bonds to raise $750 million to $1 billion ((?5,550-7,400 crore) at the earliest, ET has reported. The operator has also appointed SBI Capital Markets to negotiate the restructuring of loans worth Rs 20,000-23,000 crore that the telco is due to repay within the next four years.
An additional stake buy in Indus Towers will help Bharti consolidate its hold over one of the world’s largest tower companies. This would allow Airtel to be in a position to monetise its holdings at a later stage, leveraging the tower company’s expected growth once Vodafone Idea revives and is a position to invest significantly to expand operations, say experts.
With over 184,748 towers and 335,106 co-locations, Indus posted a net profit of Rs 1,571 crore in the December quarter, up 16% on-year with telcos adding more locations to tap strong data demand amid a continuing pandemic.
With increased demand for leaner towers as telecom companies augment capacities in urban settings to cater to increasing data demand, the growth model for tower companies could alter in future. “The profitability for these towers is significantly better than macro towers, and will have a returns profile similar to normal towers,” equity research firm Edelweiss has said in an internal note.
