In a board meeting held on 20th March, 2019 Vodafone Idea took the decision to issue equity shares. India’s largest telecom operator confirmed Rs 25,000 crore rights issue. Right Issue will be at a sharp discount of 61% as against prevailing market rate. The issue is set to hit the market on 10th April,2019 with the closing date being 24th April, 2019. The face value per equity share is Rs 10 with a premium of Rs 2.50.
Vodafone Group and Aditya Birla Group, promoter shareholders of the company are up for contributing an estimated Rs 11,000 crore and Rs 7,250 crore respectively as a part of this issue. Vodafone Idea rights issue is the second major fundraising by an Indian telecom this year after Bharti Airtel. Except the Bharti Airtel fundraising was with a view to reduce debt and fund operations.
The Capital Raising Committee was already aware of this as Vodafone Idea had authorized them earlier. It was for the issue price, rights entitlement ratio, record date, timing of the issue and other issues. Further, this rights issue will give Vodafone Idea the potential to compete with Reliance Jio who has set up a stiff competition in the market. Jio has basically started a tariff war in the telecom sector.
Objective of the Issue:
The board stated that this rights issue is made with an aim to strengthen company’s countrywide network coverage. Further it is also raised to compete with Bharti Airtel and Reliance Jio Infocomm. The rights entitlement ratio is fixed at 87 equity shares for every 38 equity shares held by the company’s shareholders.
Equity infusion at this point of time was important to let the shareholders know the seriousness and the intent of the company. This rights issue is capable of giving company a financial boost and help pare debt of up to Rs. 105 crores. The shortfall to pare debt will be covered up by a proposed stake sale worth Rs 20,000 crore in Indus Tower and also through monetisation of optical fiber assets.
Moreover, there has been a consistent decline in the EBITDA margin of the company, the current EBITDA being Rs. 650 – Rs. 750 crores annually on a consolidated basis. Operating expenses were down by Rs 750 crore in Q3FY19, “due to realization of merger synergies”. In the same quarter cash & cash equivalents stood at Rs 8,904 crore, down from Rs 13,553 crore in Q3FY18. Net Debt stood at Rs 114,759 crore, up from Rs. 112,506 crore.
Moreover, the board stated that they are confident their average revenue per user levels will rise this point onward. In addition to this, Vodafone Idea CTO Vishant Vora stated that their objective behind this rights issue is to expand their 4G capacity. Also to make sure all their investments are future proof. Further, their intent is to deploy massive MIMO and optimum utilization of HetNet.
On 20th March, 2019 Vodafone Idea was up by 3.28% trading at Rs 33.10 on the NSE.