India's Vodafone Idea to raise $5.4B through debt and equity

India's third-largest service provider, Vodafone Idea, is planning to raise a total of 450 billion Indian rupees (US$5.4 billion) through a combination of equity and debt to expand 4G coverage, invest in 5G rollout, improve customer experience and enhance capacity.

As per an exchange filing, the company plans to raise INR200 billion ($2.4 billion) through equity or equity-linked instruments and the remaining INR250 billion ($3 billion) through debt.

The company mentioned it will call for a shareholder meeting on April 2, 2024. Following shareholder approval, it hopes to complete the equity fund raise in the coming quarter. Vodafone Idea also announced that the promoters, Vodafone Group and Aditya Birla Group, will participate in the equity raise. However, it is not clear how much equity will come from the promoters. 

"The proposed fundraise follows a marked improvement in operating metrics. The Company has managed to grow its 4G subscriber base and ARPUs consecutively for the last 10 quarters. Further, the company remains focused on providing competitive data and voice experience at all locations where it is present," said Vodafone Idea in a filing and media statement.

"The Company is also steadfast in building a differentiated digital experience adding several digital offerings in the recent quarters. The Company has consistently shown an improvement in performance even with limited investments. With the proposed fundraise and the positive operational developments, the Company is confident of effectively competing in the market," it added.

Related:Vodafone Idea desperately looks for a knight in shining armor

Massive debt, 5G delay and dwindling market share

Vodafone Idea is the only private service provider that has yet to launch 5G services. The country's top two service providers, Reliance Jio and Bharti Airtel, launched 5G way back in October 2022. They've almost completed their pan-India coverage and claim to have over 100 million subscribers.

Vodafone Idea's CEO, Akshay Moondra, said on a recent earnings call that the company planned to launch 5G services in the next six to seven months. The company was recently in the news for running an open RAN pilot with Mavenir before a large-scale rollout.

But the company is consistently losing market share because of its inability to upgrade its network or launch 5G services. Vodafone Idea's market share has fallen from 2.61% in December 2022, to 2.17% in December 2023, as per data released by the Telecom Regulatory Authority of India (TRAI). Its subscriber base fell from 241 million in December 2022, to 223 million in December 2023.

The delay in the 5G launch is primarily because of Vodafone Idea's massive debt. As of December 31, 2023, Vodafone Idea had a total gross debt of INR2.14 trillion ($25.93 billion), which includes INR2.1 trillion ($25 billion) owed to the government for deferred spectrum payment obligations and adjusted gross revenue liability. Apart from this, the company owes INR60.5 billion ($729.9 million) to banks and financial institutions and INR16.6 billion ($200.2 million) for optionally convertible debentures.

The fundraise is crucial for the service provider to survive and make a comeback as competitive intensity continues to erode its subscriber base.