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Vodafone plans to infuse $1.3 billion into India operations ahead of merger with Idea

Investments come as company faces intense competition from Reliance Jio

In its annual report for the fiscal year ended in March, Vodafone's financial chief Nick Read said the company's net capital injection into India at end of this month would include the equity investment   © Reuters

MUMBAI (NewsRise) -- Vodafone Group plans to inject 1 billion pounds ($1.3 billion) into its Indian arm ahead of the completion of its merger with smaller rival Idea Cellular by June-end,as telecom operators beef up their war chest to take on Reliance Jio Infocomm.

In its annual report for the fiscal year ended in March, Vodafone's chief executive designate and financial chief Nick Read said the company's net capital injection into India at end of this month would include the equity investment it must bring in to match that of partner Idea as part of their merger agreement. Earlier this year, Idea said it is raising as much as 67.5 billion rupees ($1 billion) ahead of the merger.

In March 2017, Vodafone and Idea agreed to combine their Indian operations in a $23 billion deal, creating the country's biggest telecom company. The new entity is estimated to have more than 400 million customers, leapfrogging market leader Bharti Airtel, with nearly 40% revenue market share. The British operator is set to have about 48% stake in the merged entity.

Vodafone's efforts to cough up fresh funds come at a time when the industry is consolidating among top four players amid a cut-rate price war triggered by the entry of billionaire Mukesh Ambani-backed Jio. The company's India service revenue and adjusted operating earnings shrank 19% and 35%, respectively in the last fiscal year. CFO Read attributed the weak financial performance to the "high competitive intensity and regulatory pressure" in India that is home to more than a billion mobile phone users.

Jio, which rolled out services in September 2016, has so far invested 2.3 trillion rupees to spread its network across the country. The company has been pursuing a strategy of offering free voice calls and data services in a bid to lure users -- a move that has eroded the revenue and profitability of India's telecom industry.

Read, who is set to take over as the CEO from Vittorio Colao in October, remains optimistic about India's prospects. "Post competitor rationalization, the Indian mobile market has scope to recover, especially given the cash outflows currently experienced by the remaining operators."

Vodafone, which entered India in 2007 after buying the local mobile assets of ports-to-telecom conglomerate Hutchison Whampoa in a $11 billion deal, has had a rocky start in the south Asian country. The company has been mired in a long-drawn out tax dispute with India's federal government over a bill of more than $2 billion. An international arbitration panel is set to start hearing the lawsuit next year.

Meanwhile, the U.K. company has piled up debt worth 7.7 billion pounds in its India operations as it pumped in billions of dollars to retain a formidable share of the fastest-growing telecom market in the world. The company is now cashing in on the demand for telecom infrastructure in India to pare down a part of the debt. In November, Vodafone and Idea agreed to sell about 20,000 telecom towers they separately own in a joint venture with Bharti Airtel -- Indus Towers -- to American Tower Corp. in a $1.2 billion deal. Vodafone said all these efforts will strengthen its financial position in India, for which it is raising nearly 3.5 billion pounds in financing. Vodafone continues to hold a stake in Indus Towers that merged with market leader Bharti Airtel's unit Bharti Infratel earlier this year.

"In the event that in the future the joint venture partners decide to put in additional funding, the group would draw upon the value of its stake in Indus Towers," Read said.

Meanwhile, the merger between Vodafone and Idea has been stalled by the delay in winning regulatory approvals. India's telecom department is now seeking to recover unpaid dues amounting to 90 billion rupees from Vodafone before it gives the final approval to the merger, a government official, who declined to be named, told NewsRise on Monday.

--Dhanya Ann Thoppil

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