![\"\"](\"\/\/www.iser-br.com\/Themes\/Release\/images\/responsive\/ettelecom-default.jpg\")
\"This is a credit positive from an investor’ point of view, if the conversion goes through,\" said Hemant Mishr, founder, SCUBECapital, a Singapore-based global fund.
“The largest single investor - the GOI (Government of India) - has a substantially higher credit standing than the other partners as is reflected in the credit spreads. The move, if there is a credit backstop provided by the government, will help attract investors to the telecom company,\" he added, underlining that the company's risk profile will improve its borrowing capacity.
The India head of another global distressed fund adds that a lot of liability effectively goes away with the telco’s move. \"The presence of an otherwise strong promoter group is also positive. Hopefully the company will find a favourable view from offshore debt investors.\"
Following the company's board meeting on Monday, India’s only loss-making private telecom carrier said it would opt for converting the interest on spectrum and adjusted gross revenue (AGR) outstanding into equity, which would see the government become the largest shareholder with 35.8% stake.
The telco said that the government would need to accept this offer. If the conversion goes through, UK-based Vodafone group will hold 28.5% with 17.8% held by Kumarmangalam Birla-owned Aditya Birla group. They currently own 44.39% and 27.66% shares, respectively, in Vi.
The move has immediately prompted select debt investors 'evaluating' to buy Vodafone Idea bonds from the local market. Those papers are not liquid in the secondary market but have changed hands occasionally at elevated yields in the range of 25-35 percent.
\"Fundamentally the move reduces debt servicing obligation,\" said Suvajit Ray, executive vice president at IIFL Securities. \"The stock market may have reacted to near term growth challenges instead of the debt resolution. The next ballgame is 5G where you need cash flows to enter the space.\"
Last month, Vi’s top deck indicated on an internal investors’ call that the telco expects to close its equity funding, including from promoters, by end-March. It was the first time Vi’s leadership said the company’s promoters -- Vodafone Plc<\/a> and the Aditya Birla Group – are likely to inject fresh equity amid efforts to close the telco’s long-pending fundraise.
\"Liquidity no longer a critical issue, and debt burden eases but remains a major issue,\" Deutsche Bank's research arm said, adding that the price rises become more likely as operators realize that waiting out VIL's demise is now a much longer and less likely event.
With likely greater regulatory protection, Frankfurt-based banking firm said that Bharti Airtel<\/a> and Reliance Jio<\/a> would need to be careful to not offend the government with fierce promotions that undermine VIL, and would be better for rivals to compete on quality of service than price.
Citi Research said that while VIL’s near-term existential concerns have been addressed by government's action, the onus is on the company to successfully complete its capital raise, accelerate network investments, and stem subscriber losses, which come with their fair share of challenges.
\"The key question remains on VIL’s ability to raise equity in the near term to meet cash flow needs over the next 2-3 years. Some investors believe that the
government stake may ease regulatory policy regime for VIL as it becomes one of the key stakeholders in the company and can aid in further price increases in the sector, improving sentiments for the fund raise,\" Credit Suisse, a financial services firm said.
The Swiss firm believes that the substantial improvement in operating performance is key for VIL to come out of this precarious situation.
\"Even after relief, Vodafone Idea will likely struggle to fund annual spectrum payments beyond an additional four-year moratorium unless Arpu reaches between Rs 250-300,\" Hong Kong-headquartered CLSA said.