Vodafone Idea Rights Issue Priced At A Steep Discount Of 61%
The rights issue will open on April 10 and close April 24, the mobile operator said.
Vodafone Idea Ltd. plans to raise nearly Rs 25,000 crore from its shareholders by issuing fresh equity at a steep 61 percent discount.
India’s largest mobile service provider will issue 2,000 crore new shares at Rs 12.5 apiece to existing shareholders, it said in a statement. The funds raised will dilute Vodafone Idea’s existing equity base by 70 percent, according to BloombergQuint’s calculations.
The company will use the funds to pare its massive debt of over Rs 1,23,660 crore (nearly $18 billion). Vodafone Group and the Aditya Birla Group would contribute Rs 11,000 crore and Rs 7,250 crore, respectively, according to the statement. The rest will be raised from public. Grasim Industries Ltd. and Hindalco Ltd. are the two listed Aditya Birla Group companies that own stakes in Vodafone Idea. Grasim and Hindalco hold 11.6 percent and 2.6 percent in the company, respectively.
The proposed fund infusion would lower the company’s leverage ratio, but it would remain high at 26.5 times its earnings before interest, tax, depreciation and amortisation, according to BloombergQuint calculations—higher than that of rivals Bharti Airtel Ltd. and Reliance Jio Infocomm Ltd. The infusion would reduce Vodafone Idea’s debt by 20.2 percent.
This would be the second fund infusion by the promoters to pare debt. Earlier, Vodafone and Aditya Birla Group infused nearly Rs 14,140 crore in their respective telecom operations to pare debt for the merger to go through. The companies started combined operations from Sept. 1 last year, a consolidation that stemmed from a tariff war triggered by Reliance Jio.
CLSA had, in a prior note, had said the rights issue to address by Vodafone Idea’s leverage issue is a short-term measure. This fund raising will be adequate only for two years beyond which it will again need to raise funds as its gearing will still be out of control over FY20-22, the brokerage said.
Vodafone Idea is also looking to sell its other non-core assets—fiber and stake in Indus Towers Ltd.—to reduce debt. The value of its 1,58,000 kilometres of fiber isn't known, while its stake in Indus Towers could fetch anything close to Rs 5,000 crore.
Rights Issue Math
Only those shareholders who own shares of Vodafone Idea as of April 2 (record date) will be eligible to subscribe to the issue—which will open on April 10 and close on April 24. The company will issue 87 new shares for every 38 shares held by the eligible shareholder.
If an investor bought 38 shares of Vodafone Idea at Rs 32.05 (closing price as of March 19), then the effective cost price per share after subscribing to the rights issue will be at an effective discount of 42 percent to the closing price.
Shares of Vodafone Idea rose over 4 percent today to end at Rs 33.4.