Vodafone Idea board okays price of Rs 12.50/share for Rs 25,000-cr rights issue

Some market watchers believe that minority shareholders may find the issue price of Rs 12.50 a share attractive as it comes at a discount of about 61 per cent to the stock's closing price on Tuesday.

The promoter shareholders (Vodafone Group and Aditya Birla Group) have confirmed their participation of up to Rs 11,000 crore and up to Rs 7,250 crore, respectively. Image source: Reuters

The country's largest telecom operator Vodafone Idea's board Wednesday approved raising of nearly Rs 25,000 crore from its shareholders through rights issue by offering fresh equity at a steep 61 per cent discount over prevailing market rate. The issue of 2,000 crore new sharesby Vodafone Idea at Rs 12.50 apiece will more than triple its outstanding shares to 2,873.53 crore. In the issue, which will run between April 10 and April 24, existing shareholders will be able to buy 87 shares for every 38 shares held at an issue price of Rs 12.50 a share, the company said in a statement.

The rights issue is expected to bring a whopping Rs 25,000 crore to the company's coffers at a time when the telecom players are injecting massive funds to boost pan-India 4G coverage, prepping up for 5G and positioning themselves to combat sustained tariff offensive from the deep-pocketed Reliance Jio Infocomm.

The move will also enable the company to pare debt, which as on December 31, 2018 stood at Rs 1,23,660 crore. "...The Board has today approved issuance of 20 billion fully paid up equity shares (face value of Rs 10 each) at a price of Rs 12.5 per share by way of a rights issue to the eligible shareholders as on the record date April 02, 2019," the statement said.

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Some market watchers believe that minority shareholders may find the issue price of Rs 12.50 a share attractive as it comes at a discount of about 61 per cent to the stock's closing price on Tuesday.

The promoter shareholders (Vodafone Group and Aditya Birla Group) have confirmed their participation of up to Rs 11,000 crore and up to Rs 7,250 crore, respectively. The balance Rs 6,750 crore will come from other equity holders.

"Furthermore, certain promoter shareholders have also indicated that, in case the rights issue is undersubscribed, they reserve the right to subscribe to part or whole amount of the unsubscribed portion, subject to the applicable laws," the statement said.

Vodafone Idea CEO Balesh Sharma exuded confidence that the company is well placed to exploit the growth opportunities ahead of it, riding on strong assets such as two leading brands - Idea and Vodafone, the largest spectrum portfolio and a well invested network.

"The proceeds from the rights issue coupled with the monetisation of our stake in Indus (tower company) will allow us to make the required investments in the business to achieve our strategic goals.

"We are moving faster than initially estimated on integration, and are well on track to deliver our synergy targets, the improving broadband coverage and capacity will enable us to offer a superior network experience to our customers as well as enhance our ability to add more broadband customers," Sharma said.

After the details of the rights issue were announced on Wednesday, Vodafone Idea stock tumbled 7 per cent on the BSE, but later erased its losses closing 3.13 per cent higher at Rs 33 per share.

The proposed rights issue will arm Vodafone Idea with the firepower to take on market competition intensified by Reliance Jio, that has sustained an aggressive tariff war in the telecom sector.

British telecom major Vodafone holds 45.1 stake in the combined entity, while Kumar Mangalam Birla-led Aditya Birla Group controls 26 per cent and Idea shareholders own 28.9 per cent.

The mega merger was announced a few months after the entry of Reliance Jio, whose aggressive pricing and freebies impacted the financials of the entire industry, which has even seen bankruptcies and asset sell-offs.

Rajan S Mathews, Director General of industry body COAI said that Vodafone Idea's rights issue at a "realistic pricing" is a strong signal from the promoters that they are committed to the sector and are bullish on its long term viability.

"Now the ball is in court of the government to address the financial issues of the industry and provide investors with reasons to continue to invest in the industry... And provide the industry with the resources to make the vision of Digital India and National Digital Communications Policy 2018 a reality," Mathews said.

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Noting that both the leading telecom operators have outlined plans to raise funds (besides Vodafone Idea, Bharti Airtel too has announced a mega rights issue), Mathews said that a financially robust telecom sector is absolutely vital to realise the aspirations of Digital India.

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