NEW DELHI:Vodafone Idea expects its ₹18,000-crore follow-on public offer (FPO) to have maximum subscription with the share of anchor investors being fully subscribed, proceeds of which will be crucial for launching 5G for its future growth and competitiveness in the Indian telecoms sector.
“We’ve had an extensive roadshow with all international and domestic institutional investors. We are positive that we should get good subscription from both retail and (high net worth) investors also," said Suraj Krishnaswamy, executive director of investment banking at Axis Capital, one of the book runners to the share issue along with Jefferies and SBI Capital Markets Ltd.
“As per the Sebi regulation, we need 90% subscription… right now, we are very confident that we should get good investor interest, especially once you see the anchor investment that comes out tomorrow," Krishnaswamy said.
As India’s No. 3 telecom carrier began the roadshow for what it being considered as the largest-ever FPO, Vodafone Idea chief executive Akshay Moondra said the company will roll out 5G services in six-nine months following the offer, and that it will expedite 5G equipment orders with vendors with which it has conducted trials.
The telco is aiming to offer 5G within 24-30 months to the geographies that contribute 40% of its revenues. The carrier remains the only private company to not have 5G services on offer, unlike Airtel and Reliance Jio, and it has concentrated its attention towards 17 priority circles that account for 98% of its revenue, and 92% of the industry’s revenue.
The cash-strapped telco will use ₹12,750 crore network expansion till FY26, of which ₹5,720 crore will be used to set up 22,000 5G sites and the rest for setting up 26,000 new 4G sites, upgrading existing 4G sites and for general corporate purposes. Inadequate 4G coverage has led to disproportionate loss of customers for the telco versus peers.
It owes ₹2,170 crore to the government in FY25 as installment for spectrum bought in the previous auction.
Moondra added that proceeds from the FPO cannot be used to pay promoters or promoter group of companies, and hence dues of Indus Towers, in which Vodafone Group Plc has a share, are unlikely to get cleared directly through the proceeds. Vi has struggled to settle a significant portion of its dues to vendors, estimated at nearly ₹10,000 crore.
As per regulations, promoters and promoter groups are ineligible to participate in the FPOs. Promoters forming the Aditya Birla Group have already invested ₹2,075 crore in the company through a preferential allotment last week, at a premium to the price band for the FPO.
Responding to queries at a press briefing on anticipated tariff hikes after the general elections in June, Moondra backed the need for a correction in prices saying India’s telecom rates were among the lowest in the world, and investments were not returning the cost of capital employed.
“In terms of size of increase (in tariff)… we've seen what kind of increases have happened in the past and that should be reasonable to think about," he said.
Carriers raised headline tariffs by 20-40% back in December 2019, the first after Jio launched its mobile services in 2016 and made voice calls a free service. This was followed by another hike, this time of 20%, in December 2021.
Vodafone’s management highlighted that 42% of the company's subscribers are still using 2G service, which contributes to lower average revenue per user (ARPU) as compared with its competitors. But this also presents an opportunity to increase ARPU by upgrading these subscribers, the company said.
The Indian government, the single-largest shareholder in Vodafone Idea with a 32% holding, would see its share in the telco drop to about 24% following the FPO.
Analysts at BofA Securities said that promoter shareholding could fall to about 38% from 50.3% now.
Proceeds will not go towards government debt, which will be paid by internal cash generation, Moondra said, adding that some annual installments with regards to spectrum payments and adjusted gross revenues (AGR) dues could be converted to equity, if the need arises. He added that even if the debt was to be converted to equity, the government’s share in the overall holding was unlikely to rise above 32%.
“We plan to pay the government installments out of our cash generation. However, there is government support available in the form of the reforms package, which says that some installments can be converted at the government's option. So the government's support exists in a way," he said.
The telco is burdened with a ₹2.1 trillion debt, including over ₹1.3 trillion owed for spectrum to the government, and ₹65,000 crore in AGR dues, again to the government. The debt is payable over the years up to 2040-41.
“While the fund-raise should improve Vi’s near-term fortunes, we don’t expect Vi to gain any meaningful market share from peers and remain concerned about potential large equity dilution (on the conversion of GoI dues). Potentially, the GoI could own an 80%+ stake in Vi on a fully diluted basis in the worst case," said analysts at Kotak Institutional Equities, noting a possibility of an extension of the moratorium, a partial waiver on AGR dues and further relief from the government.
They added that after the moratorium on spectrum payments and AGR ends by FY25, Vi would have repayments of ₹29,100 crore in the October-March period of FY26 and ₹43,000 crore annually over FY27-FY31.
Moondra said there was no need for additional spectrum currently other than the renewals, which the company plans for in upcoming spectrum auctions.
Post the FPO, the loss-making carrier will raise over ₹20,000 crore from banks as debt, part of its overall fund raise plan of ₹45,000 crore which is expected to close by end of June. The fundraise will mark the completion of its efforts that have been in the works since September 2020.
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