“Arrangement between the Company and its wholly owned subsidiary Vodafone Towers Limited (VTL), for transfer of Fiber Infrastructure Undertaking of the Company to VfL, by way of demerger, and filing of the certified copy of the order with the Registrar of Companies on October 15, 2019, the Scheme has become effective and consequently the Fiber Infrastructure Undertaking of the Company stands demerged from the Company to VfL,” said the telecom operator in a regulatory filing on Wednesday.
Shares of Vodafone Idea surged by 6.49% to close at Rs 6.56 a piece on the BSE on Wednesday, on the back of this announcement and reports of a possible two year spectrum due moratorium being contemplated by the government for the sector.
The Kumar Mangalam Birla led telco is the third among the trio of private operators –Reliance Jio, Bharti Airtel to have taken the decision to create a separate fibre unit which can attract investments or be sold, to ease off the debt burden. Jio has already had a headstart in attracting investments –by creating fibre and tower units called -Jio Digital Fibre Pvt Ltd and Reliance Jio Infratel Pvt Ltd. The company had earlier reported that the former was raising about Rs 27,000 crore in syndicated loans from a group of banks to strengthen the business and attract players in telecom and power sectors to use the assets.
For Vodafone Idea, this step comes at a time when its net finance costs increased by 23% in the quarter ended June. The company had raised Rs 25,000 crore through a rights issue in May, but needs more capital for 4G expansion and to clear its spectrum dues to the government.
Infact , the operator was in talks with rival Bharti Airtel for an optic fibre joint venture but ET had reported in its August 24 edition that those talks have been put on the backburner, given the divergent funds requirements of the two telcos.
While Vodafone Idea needs to monetise its fibre network assets quickly to stave off immense financial pressure, Airtel has reduced its debt to manageable levels.
“We expect Vodafone Idea to be free cash flow negative for the foreseeable future, with net-debt-to-EBITDA at about 11x even in FY21,” Credit Suisse said in a note, adding the company’s cash balance could reach very low levels by September 2020.
“We note that Vodafone Idea has announced its intent to monetise fibre assets, which, if completed, could provide some more headroom to the company,” it added.
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