Google's 5 per cent investment would not provide relief to Vodafone Idea: Report

Google's 5 per cent investment, even if it materialises, would be inadequate to solve debt problems at Vodafone Idea, according to a Credit Suisse report.

“While Google's investment into VIL would be incrementally positive, we do the not think a 5 per cent stake (₹840 crore based on current market price) would provide any meaningful relief to VIL's debt problems,” it said.

“We note that the company has debt of ₹1.03 billion as of December 19, apart from ₹530 billion AGR dues (as per DOT) and a net debt to EBITDA of 9.6 times (12.9 times including AGR dues) and, hence, would need sizeable investment to be a going concern,” it added.

Acquisition of a controlling stake by an outsider or a sizable equity infusion by current promoters is the need of the hour.

“We think unless Google (or any other external investor) looks at acquiring a controlling stake in VIL the chances of company's longer term survival beyond FY23 (when the moratorium on deferred spectrum debt ends) appear to be low,” it added.

On Thursday, various media reports stated that Google had initiated discussions to acquire up to 5 per cent stake in VIL. However, VIL denied it informing the regulator that “currently, there is no proposal as reported by the media that is being considered at the board".

According to Goldman Sachs, if true and consummated, we believe such a deal would be a strategic positive for Vodafone Idea and tower companies and an incremental marginal negative for India telcos such as Bharti Airtel.

The reported 5 per cent stake sale would have little impact on VIL’s leverage (19 times net-debt-to-EBITDA as of December 19), it said.

“However, we believe that any such investment from a global tech company such as Google could potentially make it easier for VIL to raise capital in the future; as the company’s leverage ratio comes down, its probability of market share decline will be lower, which we believe would result in investment attractiveness. We note that the AGR situation still remains uncertain, and could potentially add as much as 50 per cent to Vodafone Idea’s existing net debt of $14 billion (per DoT calculation, more here),” it added.

“Given the existing high balance sheet leverage, our calculation suggests VIL would need at least $10 billion of incremental capital for net-debt-to-EBITDA to fall below 3x by FY23E (in line with global telco peers),” the Goldman Sachs report added.