Voting advisory firm IiAS gives a thumbs up to Vodafone Idea fund raise

Promoter infusion will pave the way for Rs 10,000-cr additional fund raise for Vodafone Idea Ltd., say experts

Voting advisory firm IiAS has recommended a ‘for’ vote on the resolution floated by Vodafone Idea (VIL) to raise Rs 4,500 crore from its promoters.

"The equity raise gives the company funds required to meet its payment obligations as well as repay its dues and meet its working capital requirements," IiAS has said in a note.

VIL plans to issue 3.38 billion new shares at Rs 13.3 apiece to its promoters Aditya Birla Group (through Oriana Investments) and Vodafone Group (through Euro Pacific Securities and Prime Metals). The issue price is 25 per cent higher than VIL’s Monday’s closing price of Rs 10.07.

IiAS said the issue price is in accordance with the formula prescribed in Sebi’s ICDR Regulations (Issue of Capital and Disclosure Requirements). The rule says the issue price should be the higher of 90-day volume weighted average and 10-day volume weighted average.

About 40 per cent of the Rs 4,500 crore will be used for making payments to Indus Towers, an associate company that provides passive infrastructure services on a co-sharing basis.

The remaining will be used for general corporate purposes.

VIL also plans to raise an additional Rs 10,000 crore in the near term from institutional investors to take on telecom rivals Reliance Jio and Bharti Airtel. This could be raised through a private placement of shares in more or more tranches.

IiAS has also recommended a ‘for’ vote on the resolution pertaining to issue of equity-linked securities to raise up to Rs 10,000 crore. The voting advisory firm has said while the issuance could lead to huge dilution the company would require additional capital for repayment of existing debt.

Investment bankers say successful infusion by promoters will pave the way for additional Rs 10,000-crore capital raise from private investors. “The infusion by promoters will bolster investor confidence. Already quite a few private equity investors have shown interest,” said an investment banker, who helps listed companies raise additional capital.

Following the Rs 4,500-crore infusion, the promoter shareholding in VIL will increase from 72.05 per cent at present to 74.99 per cent. While institutional investors’ holding will dilute slightly from 5.57 per cent to 4.98 per cent.

Industry watchers say the fund infusion, telecom sector reform package announced by the government in September 2021 and tariff hikes undertaken by all the players can provide VIL fresh lifeline to compete in the three-player telecom industry, which provides critical internet infrastructure to the country undergoing a digital revolution.

VIL shareholders will cast their votes at the company’s extraordinary general meeting (EGM) to ratify the two resolutions pertaining to Rs 14,500 crore fund raise and six others. The voting period starts March 22 and ends on March 25. IiAS has recommended a ‘for’ vote on all the eight resolutions.