Vodafone Idea Ltd’s shares have fallen 27% since its promoters said in mid-November that they would contribute up to 18,250 crore to its planned capital raise. That creates sizeable problems for the company, which later said that the route used for the fundraising would be a rights issue.

To start with, because of the drop in the share price, the dilution of Vodafone Idea’s current equity will be about 15% more compared to mid-November, when the company first talked of the fundraise. At current prices, the dilution in the equity may be as much as 100%.

In 2008, when Tata Motors Ltd tried to partly fund the Jaguar Land Rover acquisition through a rights issue, its shares had fallen heavily. The promoter, Tata Sons Ltd, had to eventually bail out the issue.

There are similar worries about Vodafone Idea’s issue among analysts. The company plans to raise 25,000 crore in all, which means minority shareholders are expected to bring in nearly a billion dollars, alongside the massive $2.5 billion infusion by the promoters. For a stock that’s fallen to nearly a fourth of its levels from January last year, that’s a monumental ask. “There isn’t much appetite for fresh investments into the company, especially given the stock’s past performance and the state of the industry," says an analyst at a multinational brokerage firm. Note that Vodafone Group Plc itself hasn’t been open to making fresh investments into India; its subscription to the rights issue will reportedly be funded through a special purpose vehicle that is, in turn, raising funds by pledging its shares in the India assets.

In any case, Vodafone Idea’s promoters can’t follow the Tata Sons script, and lap up the entire unsubscribed part of the rights issue. This is because they aren’t very far from prescribed norms for minimum non-promoter shareholding. In fact, unless minority shareholders subscribe to shares worth at least 5,000 crore, the promoters will breach the 75% mark for maximum promoter shareholding set by the Securities and Exchange Board of India (Sebi). And if minority shareholders commit, say, only 2,500 crore to the issue, that would mean Vodafone Idea’s promoters will be able to buy equity shares worth only 11,000 crore or so, which is 40% lower than the amount they have earmarked.

Of course, given the precarious state the company is in on the indebtedness front, that’s an outcome they can ill-afford. Even after using generous assumptions on cost synergies, Vodafone Idea’s net debt to Ebitda (earnings before interest, tax, depreciation and amortization) ratio will improve to only around 10 times. And with continued high cash burn each quarter, this metric keeps worsening. The company needs an equity infusion urgently and a large one at that.

In fact, this seems to be the reason Vodafone Idea is leaving nothing to chance with its rights issue and the company added that it also has the option of issuing compulsory convertible debentures in the rights offer. Such an instrument would be viewed as a debt security by Sebi, helping it steer clear of the prescribed shareholding norms. At the same time, rating agencies will treat it as a quasi-equity instrument, which will help improve its debt-equity ratio. In short, it will be the best of both worlds.

But what all of the above points to is the fact that Vodafone Idea is walking a tightrope. It’s an odd place to be when your competitors are gunning for you. The company’s one big hope was that tariffs will gradually increase because they are causing cash burn for all telcos—after all, how long can even a behemoth such as Reliance Industries Ltd (RIL) tolerate high cash burn? But RIL’s solution to the cash burn problem doesn’t involve higher tariffs at its subsidiary Reliance Jio Infocomm Ltd, at least for now. Jio is instead looking at asset sales to raise cash, it said recently.

This means Vodafone Idea’s predicament could continue, making it difficult for the company to defend market share. Some analysts have turned so sceptical about its prospects that they foresee it moving from a market leadership position to a distant third. Analysts at IIFL Institutional Equities, for instance, are working with a steady-state revenue market share of merely 10% for the company, with Reliance Jio expected to take the leadership position with a share of 51%. The brokerage firm expects Bharti Airtel Ltd to maintain its revenue share of 37%.

Of course, there are others who still think the three companies will have a similar market share. But for that to happen, Vodafone Idea needs to get off the tightrope and stand on firm ground.