Vodafone Idea plans to raise up to Rs 45,000 crore through equity, debt

Funds to be spent on 4G & 5G networks, capacity expansion

Vodafone Idea’s board on Tuesday greenlit plans to raise up to Rs 45,000 crore in equity and debt, and use the funds to expand its 4G coverage, roll out a 5G network, and increase capacity.

The fundraising plan, the cash-strapped telecom firm in a statement said, includes a capital raise of Rs 20,000 crore through a mix of equity and equity-linked instruments by bringing in an external investor as early as next quarter. A company insider revealed that discussions with the potential external investor are at an advanced stage.

The board has given the management the go-ahead to appoint bankers, counsel, and advisers to execute the fundraising plan. The equity could be raised through various means, including convertible debentures, warrants, global depository receipts, American depository receipts, and foreign currency convertible bonds. These could be issued through a public offer, private placement, preferential issue, or a qualified institutional placement, the company said. A shareholders’ meeting is scheduled for April 2 to seek approval for completing the equity fundraising.

Vodafone Idea’s promoters will also participate in the proposed equity raise, with a commitment of Rs 2,000 crore made in August last year. Aditya Birla Group currently holds 18.1 per cent of the company, the Indian government owns around 33 per cent, and the UK’s Vodafone Group has a 32.3 per cent stake in the company.

In the past, the British firm had declined to inject any more funds into the Indian company.

The company is also in talks with lenders to secure debt funding, which will follow the equity fundraising. The company’s bank debt currently stands at less than Rs 4,500 crore, it said.

“These investments will enable the company to improve its competitive positioning and offer an even better customer experience,” the telco said in the statement.

Vodafone Idea shares closed 6 per cent down at Rs 16 apiece on Tuesday, giving the company a total market value of Rs 77,254 crore.

“The stock could come under pressure on Wednesday as the market was expecting an announcement of new investment, which has not come. The company had earlier passed similar resolutions,” said an analyst.

But for the long term, analysts said, the promoters participating in the proposed equity raise is good news. “We also believe that these investments will enable the company to improve its competitive positioning in this telecom sector and offer an even better customer experience and gain market share. We believe the stock has already discounted the fundraising development and thus, we can see a limited upside up to Rs 17-18 a share in the best-case scenario. On price action, after this news, we remain neutral on this development,” said Prashanth Tapse of Mehta Equities.

The proposed fundraising follows a marked improvement in operating metrics, with growth in its 4G subscriber base and average revenue per user (ARPUs) for the past 10 quarters, the company noted and said it remains focused on providing competitive data and voice experience at all locations where it is present.

“The company has consistently shown an improvement in performance even with limited investments. With the proposed fundraise and the positive operational developments, the company is confident of effectively competing in the market,” it said.

Vodafone Idea’s fundraising comes at a time when the company reported a net loss of Rs 6,985 crore in the December quarter, a 12.5 per cent decrease from Rs 7,990 crore in the corresponding quarter of the previous financial year. The company continued to lose customers to Reliance Jio and Bharti Airtel, ending the December quarter with 4.6 million fewer subscribers. The overall subscriber base stood at 215.2 million, as of December last year.

On a sequential basis, the firm’s net loss had reduced 20 per cent, down from Rs 8,737 crore in the preceding quarter. However, the telco’s finance cost increased to Rs 6,493 crore, up from Rs 6,284 crore in the same quarter of the previous year. An analyst commented: "Capital expenditure for the rollout of 4G and 5G-based telecom networks is of significant importance. The much-anticipated capital raise is crucial to ensure immediate liquidity and facilitate network expansion.”