Vodafone Idea Secures ₹5836 Crores Promoter Support

Vodafone Idea Ltd (Vi) has won a long-running financial battle with its promoter group after amending a decade-old liability pact. It is a move that could provide some relief to the debt-burdened telecom operator. Regulatory filings show the company will receive about ₹5836 crores from the Vodafone Group under the revised settlement of contingent liabilities dating back to the 2017 merger of Vodafone India and Idea Cellular.

The Updated Terms

Under the updated terms, Vodafone Group promoters will pay ₹2307 crores in cash to Vodafone Idea over the coming 12 months. Vodafone Idea will be able to instruct Vodafone to sell these shares in one or more tranches, with all proceeds passed on to the telco.

The cash and equity vehicle marks a recalibration of the original Implementation Agreement signed on March 20, 2017. It established a Contingent Liability Adjustment Mechanism (CLAM) to address legal, regulatory and tax liabilities of the two merging firms.

That mechanism initially placed Vodafone Group’s exposure at ₹8369 crores. Following the amendment, the company now expects to collect roughly ₹5836 crores by year-end.

Volatile Share Price of Vodafone Idea

The announcement comes at a time when Vodafone Idea’s stock has been particularly volatile. On a year-to-date basis, the stock is up 33.21% and has added 7.45% over the past month. The recent trend, however, has turned weak. Vodafone Idea shares have slid 12.11% over the last five trading sessions.

Analysts say the amended liability pact was widely expected after Vodafone Idea flagged the need for promoter support to shore up liquidity.

Cash Flow and Balance Sheet Implications

Vodafone Idea’s secured cash payment in the next year should provide it some breathing room. However, the effective liquidity benefit may be more gradual, given that it relies partly on equity monetisation. The earmarked promoter shares will only translate into cash as and when Vodafone Idea chooses to sell them. This makes the overall benefit somewhat dependent on future market conditions and execution timing.

Still, industry watchers point out that any commitment from the promoter group to funnel funds into the business is a positive signal after years of funding uncertainty. Vodafone Idea’s debt pile remains among the highest in India’s telecom sector. Tight finances have hampered its efforts to invest in network upgrades. Even through structured equity releases, the infusion of funds could alleviate the pressure on working capital.

Future Plans Under Wraps

For now, the Vodafone Idea management has kept their future plans a secret, focusing instead on closing the revised liability arrangement. The company has not publicly detailed how quickly it might monetise the earmarked shares or how the fresh resources will be allocated between capex and debt reduction. Market participants said clearer guidance in upcoming quarterly disclosures could help build investor confidence.

Sources:

The Week
Mint
MSN