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Vodafone Idea’s Rs 25,000 crore rights issue opens today

FE Bureau
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In its efforts to reduce debt and garner funds for future capex spends, Vodafone Idea (VIL) will be raising Rs 25,000 crore through a rights issue, which opens on Wednesday. The fund raising move, which was first indicated by the company when it announced its July-September 2018 quarter earnings, comes at a time when Vodafone Idea needs to pare its high net debt of Rs 1.15 lakh crore as on December 31, 2018.

The board of directors of Vodafone Idea on March 20 cleared the planned Rs 25,000-crore rights issue at a price of Rs 12.50 per equity share, at a steep discount of 61% to the prevailing market rate. The unadjusted share price on March 20, 2019 was Rs 32. In a regulatory filing, the company had said the rights entitlement ratio has been fixed at 87 equity shares for every 38 shares held by eligible shareholders of the company on the record date, that is April 2, 2019.

Of the Rs 25,000 crore, bulk of Rs 18,250 crore will be contributed by the promoters Rs 11,000 crore by the Vodafone Group and Rs 7,250 crore by the AV Birla group. The balance will be raised from the public but if the issue is under subscribed, the promoters would subscribe the amount either in part or full.

AV Birla Group s listed firms, Grasim Industries and Hindalco Industries hold stakes in Vodafone Idea. While Grasim holds around 11.6%, Hindalco has a 2.6% stake. This is the second time that the promoters are infusing funds in the company. Earlier in the year, promoters of Vodafone and Idea Cellular had infused around Rs 14,140 crore in their respective companies for the merger between the two to go through.

Balesh Sharma, CEO, Vodafone Idea, said in a statement on Tuesday: We believe that the proceeds from the rights issue coupled with the monetisation of our stake in Indus Towers will allow us to make the required investments in the business to achieve our strategic goals. VIL has said that it is progressing well on the stated strategy, which includes accelerating the integration of its operations; prioritising investments in profitable areas; focusing on increasing average revenue per user (Arpu) and increasing business services and other arrangements.

Meanwhile, analysts have noted that despite the fund raise by Vodafone Idea, synergies through the merger and their stake sale in Indus, the company’s debt to Ebitda ratio could be a high 19 times in FY20. Peer Bharti Airtel s net-debt-to-Ebitda (Last 12 month) at the end of the December quarter was 4.28 times. Rights issue at about 60% discount to the current stock price will result in a huge 229% equity dilution, analysts at CLSA noted last month.

While the rights issue will help fund interest and capex spend in the near term, analysts said that they maintain that further capital infusion will likely be needed beyond FY21. Assuming full subscription of the rights issue, the capital raising will lead to about 25% lower net debt and around 75% lower loss per share in FY20-21CL, analysts said.

Earlier, analysts at JP Morgan had said that Idea does not appear to be in a position to fund even basic capex, given the burdensome leverage. Even if the entire Rs 25,000 crore is used to service debt, the company will be left with a debt of Rs 92,000 crore, taking into account interest cost, by the end of the current financial year, they had noted.

Analysts at Kotak Institutional Equities (KIE) have estimated a funding gap of Rs 38,000 crore, should Vodafone Idea spend a cumulative Rs 50,000 crore on capex by 2020-22 and incur a cash interest cost of Rs 31,000 crore. VIL s rights issue will close on April 24, 2019.