Vodafone India FPO: How is it different from IPO? Who are anchor investors?

Vodafone Idea (Vi), India's third-largest telecom operator, has raised about Rs 5,400 crore in its follow-on public offering from anchor investors including GQG Partners, Fidelity Investments, UBS Fund Management, Jupiter Fund Management, and Australian Super. 

These are typically big investors who commit to buying a significant portion of the shares offered in the IPO upfront.

Who are Anchor Investors?

Anchor investors are typically large institutional investors like investment management firms, mutual funds, or sovereign wealth funds. They commit to buying a significant portion of the shares offered in an IPO or FPO upfront, usually before the offering is open to the public.

 

Why are Anchor Investors Important?

Boost Confidence: Participation from well-known and reputable anchor investors signals confidence in the company's future prospects. This can attract other investors who might be hesitant otherwise.
 

Guaranteed Demand: By committing to buy shares upfront, anchor investors provide a certain level of guaranteed demand for the offering. This helps ensure the success of the FPO and raises the necessary capital for Vi.
 

Price Stability: During the initial public offering period, anchor investors can help stabilize the share price by acting as a buffer against short-term fluctuations.

Here are some of the potential anchor investors in the FPO:

GQG Partners - A global investment management firm

Fidelity Management & Research Co. - A major American investment company

HDFC Mutual Fund - A leading mutual fund company in India

Quant Mutual Fund - Another prominent Indian mutual fund company

FPO vs. IPO:

IPO: When a company sells shares to the public for the first time, it's called an IPO. This is how a company raises initial capital.

FPO: When a company that's already publicly traded issues new shares to raise additional funds, it's called an FPO.

Benefits for Anchor Investors:

While they play a critical role in the success of an IPO/FPO, anchor investors also benefit:

Favorable Pricing: Anchor investors often receive shares at a slight discount compared to the public offering price.
 

Allocation Advantage: They are typically guaranteed a larger allocation of shares compared to regular retail investors.
 

Long-Term Investment: Anchor investors might see this as a long-term investment opportunity in a growing market like India's telecom sector.

FPO details 

The Vodafone FPO is part of the cash-strapped company’s plan to raise Rs 45,000 crore through debt and equity.

The FPO is entirely a fresh issue of shares. Half of the FPO size has been reserved for qualified institutional buyers, 15 percent for non-institutional investors and the remaining 35 percent for retail investors.

The shares will be offered at Rs 10-11 apiece. This is at a discount to the recent fundraise, where promoter entity Aditya Birla Group infused Rs 2,075 crore via a preferential issue at Rs 14.87 per share.

Out of the entire FPO funds, the telecom company plans to allocate Rs 12,750 crore towards acquiring equipment to expand its network infrastructure. Additionally, Rs 2,175.31 crore from the proceeds has been earmarked for deferred payments related to spectrum to the Department of Telecommunications and towards goods and services tax.

The largest FPO before this was a Rs 15,000 crore rupee sale by Yes Bank in 2020.
 

Vodafone Idea also plans to raise an additional Rs 25,000 crore through debt for which it has been in talks with lenders, without specifying details.
 

The company said it would use the equity and debt funding to roll out its 5G network service within six to seven months of securing the funds and expand its 4G coverage.
 

Larger rivals Bharti Airtel and Reliance Jio have already launched their 5G services in most parts of the country.

With inputs from Reuters