Banks reluctant to fund loss-making Vodafone Idea before capital hike

By Nupur Anand and Munsif Vengattil

MUMBAI (Reuters) - Loss-making Indian telecom operator Vodafone Idea has sought at least 70 billion rupees ($846 million) in emergency funds from local banks, which are however reluctant to extend fresh loans, four sources familiar with the matter said.

The company needs the funds to remain in business. But the lenders will wait for either a capital increase by its main shareholders - UK-based Vodafone Group and local investor Aditya Birla Group - or a debt-to-equity conversion by the government before granting the debt-laden operator more funding, the sources told Reuters.

"Without that (capital injection) it looks difficult for the company to ...survive," said one top official at a state-owned bank.

Mumbai newspaper Financial Express reported in November that the carrier needed to raise about $3 billion in all to avert an immediate financial crunch - with any government rescue package coming on top of that.

Vodafone Idea is awaiting a final nod on a government package that would allow it to convert interest of $1.95 billion on deferred adjusted gross revenue owed to the government into equity.

According to its latest earnings enclosure, the carrier had total gross debt of $26.6 billion at end-September.

Vodafone Idea, the telecom ministry, and State Bank of India - the country's largest lender which the company has approached for financing - did not immediately respond to Reuters requests for comment.

Telecom Minister Ashwini Vaishnaw said on Thursday that conversion of equity alone would not solve the company's financial problems, and it needed a capital injection from multiple sources.

A second senior source at a state-owned lender said the carrier was caught in "a bit of a catch-22 situation." A third banking source said it was not yet in default on its bank loans.

The government wanted its shareholders to bring in cash first, for which they had approached the banks, "whereas we would first like the government to convert their debt into equity," the second source added.

A feasibility study shared by Vodafone Idea with its bankers suggested the business might need a radical restructuring in order to survive, several of the sources said.

As the carrier was systemically important, "banks will need to have a joint consultation as a consortium, and also with all the stakeholders including the government before a final call on granting the loan can be taken," the first source added.

An equity conversion by the government would be expected to raise its stake in the company to beyond 30%.

($1 = 82.7330 Indian rupees)

 

(Reporting by Nupur Anand in Mumbai and Munsif Vengattil in New Delhi; Additional reporting by Ira Dugal; editing by John Stonestreet)