Vodafone Idea to launch ₹18,000 crore FPO at ₹10-11 price band

Vodafone Idea will launch a follow-on public offer (FPO) worth ₹18,000 crore next week at a price band of ₹10-11 apiece. In a filing on the BSE on Friday, the Aditya Birla Group company said the five-day offer will open on 18 April, while anchor investors will gain access on 16 April.

Typically, 50% of FPO shares are reserved for qualified institutional buyers, while 33-35% is reserved for retail investors. Retail investors have to bid for a minimum lot size of 1,298 shares, with bids required to be in multiples thereof.

According to industry insiders, institutional investors’ portion has already been fully subscribed. However, neither did Vodafone Idea, India's third largest telecom services provider, make any official statement, nor did it comment on Mint's queries till press time. 

According to a Reuters report, investment firm GQG Partners and State Bank of India Mutual Fund are considering investments of up to $800 million in the FPO, including a $500-million commitment by the US-based fund.

According to the exchange filing, the telco will start road shows and interact with investors and analysts across India from 15 April until the bid closing date.

“The capital raising committee is scheduled to be held on 16 April 2024 for the purposes of allocation of equity shares to the successful anchor investors pursuant to the offer and for determination of the anchor investor allocation price,” the company said.

At the upper limit of the price band, Vi is offering the shares at a discount of around 26% to the recently approved preferential issue price of ₹14.87 apiece for the promoter entity, Oriana Investments Pte. Ltd. It also represents a discount of about 15% over Thursday’s closing price of ₹12.95, it added.

Last week, Mint reported that the Aditya Birla Group-promoted firm will raise money from the markets through an FPO at a discounted price band, and had appointed Axis Bank, Jeffries Group and State Bank of India as lead bankers for managing the share sale.

The FPO marks the culmination of several attempts by the loss-making telecom services provider to raise funding. It had first announced its capital raising plans in September 2020.

Vodafone Idea’s shareholders had approved a ₹45,000-crore fundraising initiative, including a ₹20,000-crore equity-based capital infusion from existing investors. 

On Saturday, Vi approved allotting shares worth ₹2,075 crore to Oriana Investments on a preferential basis, and raised its authorised share capital to ₹1 trillion.

After completing the equity fundraising, Vodafone Idea plans to raise debt, to achieve a total funding to ₹45,000 crore. The fundraising is expected to be completed by the end of June.

“Completion of the planned ₹45,000 crore fund raise should enable VIL to ramp up network capex and narrow the gap with peers on 4G coverage and 5G rollouts. Combined with potential tariff hikes after elections, and the possibility of AGR relief (matter pending in Supreme Court), should significantly boost VIL’s cash flow position,” said analysts at Citi Research in a note.

In India's capital-intensive and fiercely-competitive telecom sector, Vi has faced a funding crunch for nearly three years, leading to several challenges including declining subscriber base and revenues.

The fundraising is crucial for the company, burdened with a ₹2.1 trillion debt, including over ₹1.3 trillion owed for spectrum to the government, and ₹65,000 crore in adjusted gross revenues dues.

Besides, Vi has also struggled to settle a significant portion of its dues to vendors, estimated at nearly ₹10,000 crore, according to industry estimates. 

While the company struggled to raise capital, its major competitors, Bharti Airtel and Reliance Jio, have surged ahead in deploying 5G services nationwide.

According to its draft red herring prospectus, the company will spend ₹12,750 crore to buy 4G and 5G network equipment and another ₹5,720 crore to set up new 5G sites, and expand existing 4G infrastructure. 

The investments will be made over the next two financial years to set up 10,000 and 12,000 new 5G sites in FY25 and FY26, respectively. The proceeds will also go towards deferred payments of ₹2,175 crore in spectrum dues in FY25, besides working capital requirements.

Citi analysts expect the carrier to become cash-surplus in four years, driven by two 20% tariff hikes over the next two years, and a reversal in subscriber losses witnessed over several quarters. According to Citi estimates, Vi will have cash reserves of ₹14,100 crore by the end of FY28.

Citi also expects the company to receive some relief from the ongoing litigation on adjusted gross revenues in the Supreme Court. Besides, it assumes that Vi might not have to meet its debt repayments obligations to the government, and instead, the government may possibly convert its debt to equity, according to the Centre's relief package announced in 2021, which included a four-year moratorium on spectrum-related payments for carriers.

“It may, however, still face a cash shortfall from 2HFY26E once the ongoing moratorium on government's AGR and spectrum repayments ends, unless the government exercises the option to convert these dues into equity – this remains a key uncertainty from both a cash flow and an equity dilution perspective,” the analysts added.

Vodafone Idea's shares fell by more than 4% during early trade on Friday, but recovered intra-day to close 1.54% higher at ₹13.15. The shares had hit a 52-week high of ₹18.40 on 23 February on the NSE, but have since been on a decline, despite news of its fundraising plans.