Vodafone India looks to raise up to Rs 5,000 cr to clear dues

Vodafone India is in talks with local and overseas banks to raise Rs 4,000-5,000 crore that could be used to pay its dues to the Department of Telecommunications (DoT) to help seal a merger with Idea Cellular at the earliest, people familiar with the matter said. India’s No. 2 telco has approached a few Europe and US-based foreign banks in India as well as two large private sector banks for the funds, they said.

“The company is exploring different routes for the proposed fund-raising. While it could be a domestic loan, foreign banks too may syndicate an overseas loan for similar quantum,” said one of the people cited above. Even a bond sale is not ruled out. The final fund-raising route is yet to be finalised though, they said.

Vodafone didn’t respond to queries. Third-ranked Idea and Vodafone India are merging to create Vodafone Idea Ltd, which will become India’s largest carrier dislodging long-time leader Bharti Airtel and be better placed to tackle competition.

Under its conditional merger nod, DoT demanded Rs 7,268 crore upfront payment for money the two telcos owe. This is split between a bank guarantee of Rs 3,342 crore on account of one-time spectrum charges claimed from Idea and cash payment of Rs 3,926 crore toward the market price for non auctioned airwaves held by Vodafone India.

While Idea was considering challenging the bank guarantee dues, it may furnish the money ‘under protest’ to facilitate an early closure to the merger and go to court later.

Reliance Communications did this in 2016 and won its case recently. DoT has to return bank guarantees worth Rs 2,000 crore to RCom. “The final decision (by Idea) is yet to be taken,” another person said.

Vodafone India doesn’t have any plan to challenge the cash dues, though it wants DoT to reduce the amount. The two telcos need to close the deal—which has breached the June-end deadline—at the earliest. The delay has held up the unlocking of an estimated $10 billion of cost and capital expenditure synergies that the combined entity needs to stay competitive on the 4G front, where Reliance Jio and Bharti Airtel have taken a lead.

But it’s also not that easy for the telecom sector to raise loans, despite strong parentage. With debt of nearly `8 lakh crore and revenue and profits dwindling amid brutal price competition, telecom is billed as a troubled sector that’s likely to translate into higher borrowing costs as lenders charge a premium. Loan rates could go up as much as 12% but if Vodafone India furnishes a guarantee from its parent, the cost could come down, said another person familiar with the discussions.