 "Vodafone Idea looks to raise Rs 18,000 crore via India's biggest FPO")
Vodafone Idea Limited (VIL) is set to launch a follow-on public offering (FPO) worth Rs 18,000 crore next week. The move is an attempt by the beleaguered telecom service provider to bolster its balance sheet and hold its own against formidable rivals, such as Reliance Jio Infocomm and Bharti Airtel.
If successful, this will be the biggest FPO in India, surpassing YES Bank’s Rs 15,000 crore share sale in July 2020. Notably, Adani Enterprises’ Rs 20,000 crore FPO was fully subscribed but later cancelled in February 2023 amid the controversy stirred by a report from US-based short seller Hindenburg Research.
The FPO will open for subscription on April 18 and close on April 22. Roadshows will commence on Monday.
According to a Reuters report citing unnamed sources, US-based GQG Partners plans to invest around Rs 4,200 crore in the FPO, while SBI Mutual Fund looks to bet between Rs 1,700 crore and Rs 2,500 crore. Investment bankers handling the FPO told Business Standard that they anticipate it to generate more demand than shares on offer due to the attractive pricing.
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VIL has set the price band for the FPO at Rs 10-11 per share. After the pricing was disclosed, VIL’s shares fell as much as 5.8 per cent to Rs 12.2 apiece during intraday trade on Friday, but later recovered to end at Rs 13.2, a gain of 1.54 per cent from its previous day’s close. The lower end of the FPO price band is 24 per cent lower than the last close and a 32 per cent discount to the recently approved Rs 2,075-crore preferential issue to the promoter Aditya Birla group.
In February, the telco’s board approved an equity fundraise of Rs 20,000 crore and a total of Rs 45,000 crore, through a mix of equity and debt. This fundraise will provide financial relief to the company and enable it to make additional investments in its network.
Currently, Vodafone Idea is one of the most indebted and financially stressed companies in the country, with a total outstanding debt of Rs 2.38 trillion and a negative net worth of Rs 74,359 crore (as of March 2023).
The mobile operator has consistently reported losses for the past eight years, with a net loss of Rs 29,371 crore and a cash loss of Rs 6,251 crore in 2022-23. Both these figures have worsened on a year-on-year basis. For comparison, it reported a net loss of Rs 3,563 crore and a cash loss of Rs 6,681 crore during the April-December 2023 period (9MFY24).
Owing to the continuous losses incurred by its operations, Vodafone Idea has lagged its peers in fresh investment in network expansion and new technologies, such as 5G. For instance, in the past three years, the telco has cumulatively invested around Rs 48,000 crore on capex, less than half that of Bharti Airtel’s around Rs 1.12 trillion and one-fifth that of Reliance Jio’s Rs 2.5 trillion capex during the same period.
Furthermore, VIL’s investment in marketing and brand promotion is among the lowest in the industry. This has resulted in a steady loss of subscribers and stagnation in revenue. The number of active subscribers on its network has declined from a high of 333.6 million in May 2019 to 215.2 million at the end of December 2023. The company’s loss has benefitted Reliance Jio and Bharti Airtel.
Some analysts believe that the fresh capital infusion from the FPO will enable the company to improve subscriber retention. However, others question if Rs 18,000 crore will be sufficient given the company’s accumulated losses of nearly Rs 1.4 trillion and the substantial capital required to bridge the growing capability gap between VIL’s network and its larger peers.
The FPO will also increase the company’s paid-up capital to nearly Rs 65,000 crore and the number of outstanding equity shares to 65,000 million – both the highest among the listed firms in the country. This could potentially lead to a long-term overhang in its share price.