Vodafone Idea (VIL) has transferred its fibre network assets to a wholly-owned unit in the run-up to their early sale aimed at bringing in additional cash that it desperately needs to take on competition from Bharti AirtelNSE -0.17 % and RelianceNSE 0.43 % Jio Infocomm (Jio).
“Vodafone Idea CFO Akshaya Moondra said the company has moved its fibre (assets) to a wholly owned subsidiary, and a potential sale would help release capital (into the core mobility business) and reduce future capex investment,” Bank of America Merrill Lynch said in a note to clients, a copy of which was reviewed by ET.
A top VIL executive had shared the status of the planned monetisation of fibre network assets at a recent analysts meet, the brokerage said.
“Segregation of fibre assets sets the stage for VIL to engage in active discussions with potential buyers, which could culminate in a fast-track hive-off of the fibre business,” a person familiar with the matter told ET.
At press time, Vodafone Idea did not reply to ET’s queries.
Earlier this month, Vodafone Idea—born out of a recent merger of Vodafone India and Idea Cellular—announced plans to monetise its sizeable fibre assets alongside plans to arrange a Rs 25,000-crore equity fund-raise to bolster its balance sheet and meet future capex needs to boost 4G coverage in its efforts to catch up with Jio and Bharti Airtel.
The embattled market leader is under intense financial pressure, having posted a whopping Rs 4,974-crore loss with an Ebitda (earnings before interest, taxes, depreciation and amortisation) margin of just 8.1% in the September quarter, raising concerns about its ability to service debt that has ballooned to over Rs 1.15 lakh crore. It needs cash to not just repay debt but to invest in expanding its 4G network.
Earlier this month, VIL chairman Kumar Mangalam Birla met top finance ministry officials, flagging off the company’s woes and warning of a default on spectrum-related payments which fall due in March 2019.
An analyst at a leading foreign brokerage estimates the valuation of VIL’s fibre assets at roughly $430-450 million, but others said it could increase to as much as $550 million if the company gives a commitment to the potential buyer to use a portion of these assets on long-term lease basis. In fact, the likelihood of VIL continuing to lease a portion of fibre assets, post-sale is not being ruled out.
Incidentally, a bulk of VIL’s 1,56,000 km fibre network assets are on inter-city routes and are currently used for backhaul capacity. Backhaul has to do with connecting the core of a telecom network to nodes and then on to towers to transmit data.
Vodafone Idea’s leadership recently told analysts that separation of the fibre business would result in fibre-related capex avoidance for the core mobility business and boost operational efficiencies.
Motilal OswalNSE 0.39 % said VIL has indicated plans “to play a role in an independent fibre sharing entity in future to restrict incremental capex”.
Source: Economic Times