Vodafone is planning a $3 billion injection of equity into its Indian unit to prepare for the market debut of new rival Reliance Jio as well as the upcoming spectrum auction.
India’s Economic Times quoted a Vodafone insider saying that: “overseas market conditions make it favourable to replace the debt here with equity as the return on equity is higher here and it will cut the debt servicing costs”. For the fiscal year of 2015-2016, Vodafone India’s net debt was roughly INR815 billion ($12.2 billion).
An IPO for Vodafone’s Indian unit is currently scheduled for Q4, and the company has stated that this remains the plan despite rumours suggesting that the offer could face a delay. These likely stem from Vodafone’s decision to delay the filing of its prospectus for the IPO – initially planned for August – until the end of the year so that it could assess the impact of Jio’s official 4G launch.
As the market’s number two operator, Vodafone is likely to splash out for airwaves in next month’s 3G and 4G spectrum auction, with a predicted spend of as much as $2 billion. Of the country’s 22 telecom service areas, Vodafone holds 4G spectrum in just nine.
The massive auction – India’s largest ever – is scheduled to start on 1st October, with over 2350MHz of spectrum available across seven 3G and 4G bands. The expected INR5.6 trillion ($83 billion) revenue raised by the auction is expected to massively outstrip the country’s last auction in March 2015, which brought in INR1.1 trillion. However, high base prices are causing some forecasters to revise their expectations down.
Vodafone’s capital injection can be viewed as a preparatory move to take on Reliance Jio, which is offering subscribers free voice and data until the end of the year. Jio’s aggressive launch strategy could precipitate a price war in an already fiercely competitive market, as Airtel, Vodafone and Idea Cellular all prepare competitive data packages.