Vodafone Idea's FPO booked 6.4 times as foreign investors bet big

The Rs 18,000 crore follow-on public offer (FPO) by Vodafone Idea Limited  (VIL) attracted nearly Rs 90,000 crore in bids from investors. As much as two-thirds of the subscriptions came from overseas investors. 

India’s largest FPO was subscribed 6.4 times, indicating that investors were ready to provide the much-needed lifeline to the cash-strapped telco to up its battle against stronger rivals Reliance Jio Infocomm and Bharti Airtel.

The qualified institutional buyer (QIB) portion of the share sale was bought 17.6 times, with 82 per cent of the bids coming from foreign portfolio investors (FPIs). Market sources revealed that US-based GQG Partners, which had subscribed for shares worth Rs 1,347 crore in the anchor quota, applied for additional shares in the main book of the FPO. 
 

 

The high networth individual (HNI) portion of the offer garnered 4.13 times subscription. But the retail portion remained undersubscribed, garnering bids for just 91 per cent of shares on offer. Despite this, the FPO attracted over 1.1 million applications.

 

“We are delighted to see the successful closure of India’s largest FPO, whereby VIL has raised Rs 18,000 crore in equity capital. It was heartening to see the QIB portion being oversubscribed nearly 19x with participation from marquee foreign and domestic institutional investors,” said Atul Mehra, MD & CEO, Axis Capital, one of the bankers to the issue.
 

Shares of VIL remained volatile in secondary market trading. The stock hit a high of Rs 13.03 and a low of Rs 12.13, before ending at Rs 12.9, down 0.23 per cent over its previous close. The price band for the FPO was Rs 10-11.
 

Considering the high demand, the new shares are likely to be priced at the upper end of Rs 11, which is at a 15 per cent discount to the latest close. However, the new shares worth Rs 18,000 crore to be issued via the FPO will lead to significant dilution of the equity base. 
 

Market players said when these commence trading — most likely on Thursday -- they may exert downward pressure on the stock price.
 

That said, the strong demand generated by the FPO, particularly from overseas funds, will be a major sentiment booster for the company. Analysts said large investors were willing to take a risky bet on the company.
 

“VIL appears to have succeeded with its current equity fundraise with the backing of a wide gamut of QIBs. While current funding and tariffs aren’t adequate for VIL to tide over spectrum/AGR (adjusted gross revenue) payments beyond the September 2025 moratorium, QIBs appear to believe that they don’t have much to lose, and can gain disproportionately if VIL thrives. If VIL is unable to raise funds and pay spectrum and AGR installments in FY26 and beyond, the government has the option to convert unpaid amounts into equity at Rs 10 per share (face value, governed by Sebi’s guidelines of preferential issuances),” said a note by Ambit, calling the fundraise a “much-needed shot in the arm”.
 

In February, VIL’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 allow it to make additional investments in its network.

Currently, VIL 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 at the end of March 2023. 
 

The mobile operator has been consistently making losses for the past eight years and reported a net loss of Rs 29,371 crore and a cash loss of Rs 6,251 crore in FY23. Both these numbers worsened on a year-on-year basis. In comparison, it reported a net loss of Rs 23,563 crore and a cash loss of Rs 6,681 crore during the April- December 2023 period (9MFY24).
 

Because of the continuous losses incurred by its operations, VIL has lagged its private peers in fresh investment in network expansion and new technologies, such as 5G. For example, in the past three years, Vodafone Idea 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 of Reliance Jio’s Rs 2.5 trillion capex.
 

Vodafone Idea’s investment in marketing and brand promotion is also among the lowest in the industry. All this has resulted in a steady loss of subscribers and stagnation in revenues. The active subscribers on the Vodafone Idea network have 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.