Many investors may find it better to invest through convertibles such as FCCBs and warrants rather than equity
The cash-strapped firm has tapped several private equity investors, including Blackstone and Apollo Global
Promoters of Vodafone Idea Ltd are staring at a sharp erosion of their shareholding if the telco’s fundraising plans bear fruit, given the company’s relatively low market value.
The cash-strapped firm has tapped several private equity investors, including Blackstone and Apollo Global, two people aware of the development said, adding it also plans to approach some sovereign wealth funds. These investors are likely to invest through hybrid/convertible instruments, the people said on condition of anonymity.
On 3 September, Mint reported that Verizon and Amazon are in talks to invest in Vodafone Idea.
In a communication on Sunday, Vodafone Idea said that it will make a strategic announcement on Monday.
After the top court allowed telcos to pay adjusted gross revenues-related dues across 10 years, the Vodafone Idea board on Friday approved raising up to ₹25,000 crore via equity and debt, with a limit of ₹15,000 crore through either route. If the firm raises ₹15,000 crore via equity, it would be about 44% of its market value of ₹34,511 crore—leading to a stake dilution for UK’s Vodafone Group Plc, which holds around 43%, and the Aditya Birla group, which holds 29%.
“They have kept all options on the table, including convertibles, which could limit immediate dilution for promoters," a person aware of the company’s fundraising talks said on the condition of anonymity.The board said it will consider the issue of equity shares or securities convertible into equity shares, global depository receipts, American depository receipts, foreign currency convertible bonds (FCCBs), convertible debentures, warrants, composite issue of non-convertible debentures and warrants entitling the warrant holder(s) to apply for equity shares or a combination thereof.
Many investors might find it better to invest via convertibles rather than equity, said a second person aware of the fundraising talks.
“They need to more than double average revenue per user to make cash flows sustainable to meet debt obligations...they need to stem consistent subscriber base erosion. Given these challenges, investors may be more comfortable subscribing to convertibles, where they can share the upside in equity if the company does well and the shares rise," he said. Depending on investor interest, there will be flexibility, he added.