New Delhi: Vodafone Idea Ltd, India’s largest telecom firm by subscribers, announced Wednesday a ₹25,000 crore rights issue that came at a steep discount to its prevailing share price as it sought to attract enough subscribers.
Vodafone Idea would issue 20 billion new shares at ₹12.50 apiece. This is a 61% discount to prevailing prices and led to shares of Vodafone Idea falling about 7% intraday, before recovering to close 3.3% higher at ₹33.10.
“The rights entitlement is determined as 87 equity shares for 38 equity shares held by the eligible shareholders. The issue will open on 10 April 2019, and will close on 24 April 2019," the company said in a statement.
Analysts said the deep discount underscores the challenging business environment in the telecom sector and the urgent need of operators to raise funds to compete with Reliance Jio Infocomm Ltd.
“Vodafone Idea is clearly underwater. The company is desperate to raise funds," a Mumbai-based analyst said, requesting anonymity. “It’s a huge discount to sweeten the deal for shareholders to subscribe, because if they don’t the promoters will have to make good the shortfall and then their stake in the company would go up," said the analyst.
Vodafone Idea had in January approved the rights issue for existing shareholders.
“The discounting is in line with past rights issues in India. The discount may appear large also because the size of the rights issue is large compared to the market capitalisation of the company," a senior official from Vodafone Idea said, requesting anonymity.
It is critical for Vodafone Idea to raise resources as it faces stiff competition from Reliance Jio, which has hit the revenue streams of other operators since it entered the telecom sector in September 2016 with cheap tariffs.
Earlier this month, the board of Bharti Airtel Ltd approved a rights issue of ₹25,000 crore, as well as the raising of ₹7,000 crore through foreign currency perpetual bond issues, taking the total capital raise to ₹32,000 crore.
Vodafone Idea, which posted a loss of ₹5,004 crore in the December quarter, also needs resources to meet its spectrum liabilities to the government and expand its 4G network coverage from the existing 62%. Its most immediate payment for ₹6,300 crore to the telecom department is due in April.
Vodafone Idea also plans to raise up to ₹5,000 crore by monetizing its stake in Indus Towers and has also separately announced plans to sell its fibre network comprising more than 156,000km of intra- and inter-city fibre routes.
“The proceeds from the rights issue coupled with the monetization of our stake in Indus will allow us to make the required investments in the business to achieve our strategic goals," said Vodafone Idea CEO Balesh Sharma.
The company had in January said that its promoters, Vodafone Group and the Aditya Birla Group, intend to contribute up to ₹11,000 crore and up to ₹7,250 crore, respectively, as part of such a rights issue. In case the rights issue is under-subscribed, each promoter shareholder reserves the right to subscribe to a part or the entire amount of the unsubscribed portion.
The Cellular Operators Association of India (COAI) believes that the pricing of financial instruments in the market place reflects the sentiment. “You always want the issue to be fully subscribed and you have to give a discount when there is negative sentiment in the industry. However, the promoters of Vodafone Idea are sending a signal that they are more bullish than general market sentiment and see long term interest in the sector," said Rajan Mathews, director general, COAI.