Government stake in Vi to be ‘credit positive’ for investors: Analysts

Mumbai | New Delhi: The government‘s potential stake in cash strapped (Vi) is credit positive from an investor‘s point of view, indicating that the telco would be in a better position to raise funds, brightening the prospects for its long-term survival, global funds and analysts said.

“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 telco’s stock crashed 20% in intraday trade before closing at ₹11.80 on the news, down 20.5% on the BSE Tuesday. Market experts said that the move was a knee jerk reaction to the fact that the stock would be issued to the government at ₹10. But they added that the shares were likely to recover, given the improving fundamentals of the industry and the company.

“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.”

“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 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.

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