Vodafone Idea board approves plan to raise Rs 25,000 cr via rights issue

The Vodafone Idea board on Wednesday approved a plan to raise funds to the tune of Rs 25,000 crore via rights issue.
 
As part of the fund-raising plan, promoters of the company — Vodafone group and Aditya Birla group — intend to contribute up to Rs 11,000 crore and Rs 7,250 crore, respectively, towards the issue.
 
“The board has considered and approved the offer and issue of fully paid-up and/or partly-paid up equity shares of the company and/or other securities convertible into equity shares of the company, including but not limited to, compulsorily convertible debentures, for an amount aggregating up to Rs 25,000 crore, by way of a rights issue to existing eligible equity shareholders of the company,” said the company.
 
Furthermore, the promoter shareholders have indicated that in case the rights issue is under-subscribed, each of the promoter shareholders reserve the right to subscribe to part or whole amount of the unsubscribed portion.
 
Vodafone Idea had announced plans to raise Rs 25,000 crore last year in equity to bolster its balance sheet and meet future capex needs to boost 4G coverage in an effort to catch up with rival telcos as they continue to pump capital. According to the new strategy, the management plans to invest Rs 27,000 crore in 2019-20, supported by savings of around Rs 14,000 crore that it expects to come from synergising operations of merged entities. This includes around Rs 8,400 crore in operating expenses and Rs 5,600 crore in capital expenditure, reports suggest. A large chunk of the cost synergies are expected from Vodafone giving up a large chunk of its co-located tower sites.

 
Vodafone Idea has undertaken a Rs 25,000 crore equity infusion in addition to its tower and fibre asset monetisation plans to continue the capex. Industry watchers see this as an indicator of the extended competitive intensity and price wars.
 
As such, Vodafone Idea’s capex spend remains significantly lower than its peers. Its Q2 proforma capex spend at Rs 3,300 crore was lower than Airtel’s Rs  7,680 crore in the same quarter. Reliance Jio’s capex remained higher at Rs 16,000 crore. During the recent Q3 results, Reliance’s telecom subsidiary Jio clearly indicated that it will not be raising tariffs. This means that across the sector, telcos will continue to remain under pressure. They have been investing heavily in improving their rural presence, 4G services and increasing subscriber base.
 
In a separate filing earlier during the day, Vodafone Idea also claimed that Bharti Infratel and Indus Towers raised demand for exit charges on account of tenancy changes after the merger. Negotiations are on in this regard.
 
Prior to the mega merger, both the entities had tenancies on the same tower of various infrastructure service providers, including Indus Towers and Bharti Infratel. “After the merger, these two tenancies on a single tower have been converted to a single tenancy with a higher loading as per the terms of the master service agreement,” the company said.
 
Vodafone Idea set aside Rs 1,000 crore as contingent liability to cover any exit penalty that it may have to pay. Considering the proposed fund raising of Rs 25,000 crore and the company’s expected internal accruals for the next eight quarters, analysts estimate the company’s overall cash to be Rs 56,000 crore. Even after covering two years of interest and capex costs, analysts expect the firm’s net debt to remain at high levels of Rs 1.4 trillion at the end of FY20.
 
Vodafone Idea stock ended day’s trade on BSE at Rs 33.75, marginally up from the previous close.