Sanjiv Bhasin, Director, IIFL Securities, says “it is an ambitious plan to raise Rs 45,000 crore which could be a game-changer if they go ahead and cannot raise that money. The debt will definitely see that there is going to be pressure on how they service that but like I said they will have to see how they take the largest shareholder that is the bank that is the Government of India on board.”

A collective fundraise of Rs 45,000 crore is what Vodafone is really looking at but Rs 20,000 crore fundraise will be via equity linked instruments. We have seen volatility in the Vodafone Idea counter but do you think this announcement is going to signal a major trend reversal for Vodafone idea?
Sanjiv Bhasin: It is a very ambitious target and it is much needed. Now there are three things which come to point one: 33% of Vodafone is owned by the Government of India and whether there is a right issue or not, we have to see how they will react because they are the largest shareholders.

Second, the promoter has also assured that he will take part in the right instrument, in the equity instrument, so we have to see what the instrument is. There is a much-needed capex because they have to get into 5G. Vodafone has never defaulted on any bank loan. It is mostly their dues to the government as far as spectrum and other related charges and we have to see how the largest shareholder, that is the Government of India reacts to this and whether they participate in case of a right issue.

But I would say it is a very large step because we were dabbling with Rs 2,000 crore and 4,000 crore, this is an ambitious Rs 45,000 crore which could be a game-changer if they go ahead and cannot raise that money. The debt will definitely see that there is going to be pressure on how they service that but like I said they will have to see how they take the largest shareholder that is the bank that is the Government of India on board. So it is a positive in a way that they have at least once and for all addressed the big problem of fundraising but raising that money is going to be the perennial point of how they are going to manage that.

Is this funding going to be enough for the 5G capex or 5G rollout that Vodafone Idea will be undertaking?
Sanjiv Bhasin: Yes, yes definitely this will be much more. It will give them breathing space and as you have seen at the balance sheet, on a Rs 11,000 crore turnover in a quarter, they did a EBITDA of Rs 4200 crore. So the margin and ARPUs are rising. Vodafone reported an ARPU of Rs 142 which one year back was closer to Rs 110. Bharti is talking of Rs 300 ARPU and then Vodafone will also survive.

Now the survival key will become even more pertinent when they raise this type of liquidity because the highly ambitious fundraise will give them breathing space to stay in the fray for 5G and so on. What challenges do you foresee as far as raising that capital is concerned?
Sanjiv Bhasin: There is a debt of almost Rs 2 lakh crore. They have written out part of that with the government turning the interest charges into equity by subscribing to 33% and if you are going to come out to the right we have to see whether the government will subscribe to that rights issue. The modus operandi of which instrument they have, whether it is from another investor, someone who is taking a stake, we will have to wait for all these details to be announced. We will also have to see how they are going to service that debt because there has been no bank default by Vodafone, they are already servicing a large debt which they have to pay to the Government of India and also the rest of it. So I would say it is a positive direction and an ambitious target. But we need more clarity on how they are going to fund that.

The government in fact has over and over again stated that they do not want the telecom sector to become a duopoly and with this fundraise of course Vodafone idea it looks like we’ll be able to sort of shed off some debt and of course raise capital as well but I want to understand how do you now look at investments or investing in the telecom space?
Sanjiv Bhasin: Well, it is the right direction. The government has always felt that there is no point having a duopoly and they want the third player to survive that is why they converted their interest into equity. But what we have to know is will the government participate in the rights issue if there is to raise capital because the founders are going to do that meaning VI and AB Capital. But what about the Government of India which is the largest shareholder?

However, raising the capital is a positive move and such a large amount at that ! We had hoped that there would be some capital infusion to wipe out the past and put them on the road forward. So we will wait for more details as to what the modus operandi is. It is an ambitious target which is going to be very beneficial in the slightly longer term because it will help them wipe out the past and look forward to the new entrant in the 5G race but the modus operandi is what we are waiting for.

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