Voda Idea offers extra toppings to potential investors

Mumbai: Vodafone Idea (VIL) is considering credit enhancement to provide additional comfort to global investors as plain vanilla offerings may not attract interest in a company with debt of almost Rs 1.7 lakh crore, people familiar with the matter said. This could be part of the debt-structuring options that the company chooses from, they said.The telco is working with Mumbai-based InCred Capital and its US investment banking partner PJT Partners along with BNP Paribas on a fundraising structure, including common equity, equity-linked and hybrid debt instruments. Debt and bond issuances could form $2-2.5 billion of the $3.4 billion (Rs 25,000 crore) that the company plans to raise. The credit enhancements being considered include giving new bond holders priority in payment of principal and interest and linking receivables with bond repayments.Vodafone Idea’s leadership team has called a press conference on Monday to make a “strategic announcement,” according to the company's media invitation. 77969297People familiar with the matter said that the telco may be relaunching its brand on Monday, unveiling a completely new identity and communication around it.The UK-based parent doesn’t plan to invest further, apart from funds previously committed. May have to Offer Much Higher Spread“Vodafone Group does not intend to put any new equity into Vodafone Idea,” the company has said.The telco will have to persuade investors that it’s a sound proposition, said an overseas institutional investor with a focus on Indian debt securities.“Without credit enhancement, very few will bet on VIL, which will be too constrained to meet regulatory requirements,” he said.Credit enhancement is expected to improve the cash-strapped telco’s rating, a necessity for tapping overseas bonds. For an overseas bond sale, an Indian company is not allowed to offer more than 450 basis points over LIBOR, a global gauge. Due to a lower rating, VIL will have to offer a much higher spread to address investor apprehension. Vodafone Group Plc bonds, rated much higher, globally yield about 0.6% with two-year residual maturities, 1.1% over four years and 2.9% over 18 years.Fitch Ratings has assessed Vodafone Group at BBB, which is a notch above the lowest investment grade rank. Crisil rated Vodafone Idea bonds at B+ with a negative watch before withdrawing the latter on July 23, citing full repayments. B+ is at the lower end of the high-yield category.Vodafone Idea declined to comment. The Aditya Birla Group did not respond to queries. Individual bankers could not be contacted immediately. The company was formed by the merger of Vodafone India and Idea Cellular, an Aditya Birla Group unit, in 2018.While the company explores a global bond sale, it has approached overseas investors including hedge and sovereign funds to sell rupee-denominated debentures, possibly to be backed by an outside provision for equity conversion, one of the people said.“Also, parts of future receivables may be tagged with bond repayments,” said a senior executive formerly associated with the company’s fundraising.Investment bankers are reaching out to global investors with proposals and the final decision will be taken soon, said the people cited above. “The company is looking at multiple debt-structuring options, in different layers. Beyond this, there is most likely equity investment as well,” said another industry executive aware of the development.For full report go to https://bit.ly/2UkKkcO

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