Vodafone Idea (Vi) may offer additional shares in the future to its vendors, including two European network vendors—Finland's Nokia and Sweden's Ericsson—to clear its remaining legacy operational dues, analysts said.
Earlier this week, Vi announced plans to raise up to Rs 2,458 crore through a preferential share issue to Nokia and Ericsson to clear a portion of their pending dues. Out of this, the telco plans to pay Rs 1,140 crore and Rs 703.5 crore to Nokia and Ericsson, respectively, by the end of September 2024, with the remaining Rs 614.5 crore to be used for general corporate purposes by the end of December 2024.
The funds raised from the preferential issue to Nokia and Ericsson will be used to part-pay their dues, but further dilution can't be ruled out. Since Vi's recent capital raise is earmarked for new capex, we wouldn't rule out further equity swaps and dilution to vendors in the future to clear operational dues, JP Morgan said in a note seen by a leading media house.
Vi is burdened with around Rs 20,000 crore of overall payables (including Rs 13,731 crore trade payables) and proposes to use the Rs 24,000 crore equity capital recently raised only for fresh capex to expand 4G coverage and roll out 5G networks. Trade payables typically reflect Vi's dues to vendors such as network gear suppliers and tower firms.
Before the proposed preferential share issue, Vi owed over Rs 1,200 crore to Ericsson and around Rs 3,000 crore to Nokia, according to people aware of the matter. After the share issue, Nokia and Ericsson will hold 1.5 per cent and 0.9 per cent, respectively, in Vi.
In contrast, analysts expect tower vendor Indus to face significant challenges in recovering its backlog of old dues from Vi—estimated at around Rs 10,000 crore (including interest). This is because Vi cannot issue shares to Indus against past dues. This is due to the fact that rival telco Bharti Airtel holds nearly a 48 per cent stake in Indus, and any potential equity issuance by Vi to Indus would result in the Sunil Mittal-led telco having an indirect ownership in Vi, which is not allowed under India's telecom laws.
Unlike other vendors (read: Nokia/Ericsson), Vi will be unable to issue shares to Indus under India's telecom laws due to Airtel's ownership in the latter, JP Morgan added.
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