Debt-laden Vodafone Idea breaches the loan covenants with lenders

Lenders want telco to put more skin in the game

Vodafone Idea (VIL), which is saddled with Rs 1.8 trillion of debt, has breached the loan covenants with its lenders.

VIL, a joint venture of Aditya Birla Group and Vodafone PLC of UK, has sought a waiver against the breach of covenants from the banks and some have given the waiver, said a source close to the development.

A waiver implies that the bank has let go of its right to take any action against the company's covenant breach. 

At the same time, alarmed by the sagging financial metrics of VIL, its lenders have asked the company to put in additional margin money or security on the table against its existing facilities.

The lenders are also planning to increase the interest rates for the company, considering its falling credit ratings and lack of promoter support.

“These will not be any additional debt issued to the company unless more equity is put on the table,” said a lender.

For the financial year ended March 2021, the company announced a negative net worth of Rs 38,224 crore and net debt of Rs 1.8 trillion.

Its finance cost shot up to Rs 18,000 crore (see chart).

The company announced a net loss of Rs 44,233 crore on revenues of Rs 42,126 crore for FY21.

“All the figures are showing that the company is in financial trouble and with promoters refusing the invest money, it will be the Indian lenders who will be left holding the can,” said another source.

But VIL lenders understand the situation and believe that the best way to get their loans repaid is by letting the company operate and use the cash generation to repay their loans, the source said 

Executives with two leading lenders said it was stressful time for VIL and the lenders would refrain from taking hasty steps that could rock the boat and make things bad for stakeholders.

“The company has approached the government for seeking additional time to repay government dues. Lenders will look at the response of the government before taking next steps,” the source said.

VIL has asked banks to increase the deadline for putting additional equity into the company after its attempt to raise Rs 25,000 crore from international investors, by way of both debt and equity, failed to get any positive response.  

An email sent to VIL did not elicit any response.

The banks will have to increase their interest rates for the company as its ratings fall. In January this year, CARE Ratings had downgraded the company and placed its long-term ratings on credit watch with negative Implications on account of the ongoing evaluation of the fund-raising option towards network expansion and paying adjusted gross revenue (AGR) dues from FY22 onwards.

Apart from high finance costs, the company is also having very high manpower costs, especially at senior levels.

“Vodafone’s costs were very high when compared to Idea Cellular. The merger turned out to be a disaster as it could not control costs at the higher level,” said another banker.

VIL’s liabilities over the next 12 months include AGR payment to the government of Rs 8,000 crore in March 2022, annual spectrum payment of Rs 8,200 crore in April 2022, and an expiry of Rs 7,039 crore bank guarantees or about Rs 23,000 crore.

Its cash flows are not enough to meet the liabilities.