Vodafone Idea opts for equity conversion during moratorium
Analysts said Vodafone Idea will opt for equity conversion for interest payments during the moratorium period, resulting in massive dilution and restricting potential equity infusion from any financial/strategic investor.
Emkay Global Financial Services said in a note that the package, which focuses on annual cash outflow deferral for telecom, provides much-needed relief to VIL.
According to reports, the government may hold anything between 30-70 per cent in Vodafone Idea, with the government offering an equity option to convert the company’s dues after a moratorium of four years.
The operators have been given the option to convert their interest arrears on spectrum and AGR payments to the government, after a moratorium of four years in equity.
Emkay Global said the telecom package, which focuses on annual cash outflow deferral for telcos, provides much-needed relief to VIL.
Besides, it is a far-sighted move with long term measures like phasing out SUC on future spectrum purchases, change in AGR definition and reduction in bank guarantees.
“The package provides a major relief to VIL for the next four years as the annual cash amount of government dues will come down to Rs 31 billion from Rs 253 billion commencing in FY 23E, with an option for the government to convert it into equity. Will happen.” The note said.
While these measures will provide a lifeline for the next four years, the annual payment to the government will increase to Rs 477 billion from FY 27E. Our estimate is already a factor of 15-18 per cent tariff hike in H2FY22, which is necessary for VIL to invest adequately in the business to prevent the ongoing loss of customers and relax interest charges on bank loans. to be completed.
“We believe that VIL will opt for equity conversion for interest payment during the moratorium period, which may result in massive dilution and restrict potential equity infusion from any financial/strategic investor,” the note said. .
“We are downgrading Bharti Airtel from buy to hold with an unchanged SOTP-based TP of Rs 730. This is based on visibility on the existence of VIL for the next four years, cash flow support to invest VIL This is based on imminent tariff hike, which in turn could restrict customer losses and the recent rally in Bharti’s stock (up ~38 per cent in the last two months),” Emkay said.
“That said, our long-term thesis still favors Bharti as we believe the existence of VIL will come into question once the moratorium ends in FY 26-27E. Further, 5 VIL’s inability to invest in live, home broadband and enterprise businesses will also be adversely impacted in the long run. Significantly higher than expected tariff hikes and VIL’s strong return as well as continued healthy return ratio for the sector, Bharti But there are significant risks to our call.
“We believe that Bharti and Jio will not opt for the moratorium as they have a comfortable liquidity position. Additionally, Bharti has also recently announced capital raising,” it added.
.