Voda Idea Rs 25,000-cr rights issue fully subscribed, will help cut debt

Market players said the attractive discount of 27 per cent to closing price of Wednesday prompted most existing investors to subscribe

Merged telecom operator Vodafone Idea’s Rs 25,000-crore rights offering has garnered full subscription, investment bankers handling the share sale said. “The rights issue has seen more demand than shares on offer. In fact, the non-promoter portion of the issue alone garnered more than one time subscription,” said an investment banker involved in the issue.

Wednesday was the last day to apply for the rights offering, which had opened for subscription on April 10. In terms of amount mobilised, the Vodafone Idea rights offering will be among the biggest equity offerings in the Indian markets.

The rights issue was priced at Rs 12.5 per share, a discount of 27 per cent to Vodafone Idea’s closing share price of Rs 17.2 on Wednesday.

The promoters of the company had committed to subscribe to the unsubscribed portion, if any. The company had got special dispensation from market regulator the Securities and Exchange Board of India or Sebi to increase its holding beyond 75 per cent, the threshold set for maximum promoter holding for listed companies.

However, high demand from non-promoter shareholders means the promoter won’t have to exercise that option, said a banker. Currently, the promoter holding in Vodafone Idea is 71.33 per cent.

Market players said the attractive discount prompted most existing investors to subscribe to the fundraising programme of the telecom major. Vodafone Idea's fundraising is the latest attempt by a telco to pare its Rs 1.1 trillion debt and fund capex plans after Bharti Airtel did the same. Besides the rights issue, Vodafone Idea aims to raise around Rs 5,000 crore from the sale of its 11.5 per cent stake in Indus Towers and monetise fibre assets to the tune of Rs 15,000 crore. After the issue and the sale, it will have Rs 45,000 crore cash available.

With the fresh funds, Vodafone Idea plans to build capacity and expand 4G coverage by reusing the existing capital already deployed. While tariff increase is one possibility for growth, Vodafone Idea believes that the funds raised will give it the opportunity to bring in more subscribers under 4G coverage and data.

Vodafone Idea’s capex (Rs 1,170 crore for the December quarter) continues to worry sector analysts as its rival telcos reported higher capex numbers. Bharti Airtel India reported a capex of Rs 5,309 crore while Jio reported Rs 14,000 crore in Q3. As of Q4, Jio’s capex crossed Rs 21,500 crore for the quarter.

The management had already guided to Rs 27,000 crore capex in FY19 and FY20 combined, of which Rs 7,000 crore has already been deployed, leaving Rs 20,000 crore of the capital expenditures expected in the coming months. Further, the management indicted higher spend of Rs 6,200 crore from reuse and redeployment of existing equipment for network enhancement. Analysts are not expecting any significant upside in the telco’s shares in the near term.

“Due to significant dilution, we expect share price to remain under pressure. We maintain cautious stance on the stock, given Idea’s underwhelming capacity expansion plans and high leverage despite capital infusion. An early and sustained improvement in industry’s average revenue per user (ARPU) is key risk to our thesis,” said Edelweiss, in a note last month.

Since December 2018, Vodafone Idea witnessed a loss of almost 13 million active customers, according to the latest TRAI subscription numbers. However, analysts widely expect ARPU of the operator to improve despite this loss, a growth that the management is banking on to survive against Bharti Airtel and Reliance Jio. 

The rights issue was handled by Kotak Mahindra Capital, Merrill Lynch, Morgan Stanley, HDFC Bank, and SBI Capital Markets.

Funding the rights way

• Rights issue was priced at Rs 12.5 per share — a discount of 27 per cent to VIL’s closing share price on Wednesday
• VIL will pare its Rs 1.1 trillion of debt and fund capex plans to boost 4G coverage
• Operator struggling to match rivals in expanding 4G subscriber base
• Management has guided for Rs 27,000 crore capex in FY19 and FY20 combined; Rs 7,000 crore has already been deployed
• Promoters had committed to subscribe to the unsubscribed portion