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April 17, 2024

Vodafone Idea’s Strategic Move: Raises Rs 5,400 Crore from Anchor Investors Ahead of Mega FPO

In a strategic move to bolster its financial position, Vodafone Idea, a key player in India’s telecom sector, has successfully raised Rs 5,400 crore from anchor investors, including prominent names like GQG Partners and Fidelity. This move comes ahead of its much-anticipated follow-on public offering (FPO), which is set to be the largest in India’s history.

The telecom giant allocated 4.9 billion shares to anchor investors at Rs 11 per share, marking the top end of the price band. Among the notable investors, US-based GQG Partners emerged as a significant subscriber, investing a substantial Rs 1,347 crore, nearly a quarter of the total anchor category shares available. Other major contributors included Fidelity, Stichting, Redwheel, Motilal Oswal Mutual Fund, and Troo Capital.

The anchor allotment, a day before the FPO’s opening, underscores the confidence investors have shown in Vodafone Idea’s potential turnaround. Scheduled to open for subscription on Thursday and close on Monday, the Rs 18,000 crore FPO is managed by prominent investment banks like Axis Capital, Jefferies India, and SBI Capital.

The enthusiastic response in the anchor category is expected to buoy market sentiment, especially considering the challenges Vodafone Idea has faced amid fierce competition from rivals like Reliance Jio Infocomm and Bharti Airtel. The company’s struggle with subscriber loss underscores the urgency of this capital infusion.

With the FPO priced between Rs 10 to Rs 11 per share, the company aims to utilize the funds to expand its 4G and 5G infrastructure. A significant portion of the proceeds, approximately Rs 12,750 crore, is earmarked for enhancing existing capacities and establishing new sites, while around Rs 2,175 crore will go towards spectrum payments and other obligations.

However, some analysts remain cautious about the company’s long-term prospects despite the fresh capital infusion. Vodafone Idea’s accumulated losses, nearing Rs 1.4 trillion, and the substantial capital required to bridge the capability gap with its competitors raise concerns about the adequacy of the Rs 18,000 crore raised through the FPO.

Over the past eight years, Vodafone Idea has grappled with consistent losses, with the figures worsening year-on-year. In the 2022-23 fiscal year, the company reported a net loss of Rs 29,371 crore and a cash loss of Rs 6,251 crore. The recent financial data for April-December 2023-24 further highlights the challenges, with a net loss of Rs 23,563 crore and a cash loss of Rs 6,681 crore.

Following the FPO, Vodafone Idea’s paid-up capital is poised to reach nearly Rs 65,000 crore, making it the highest among listed firms in India. Additionally, the increase in outstanding equity shares to 65,000 million will lead to a substantial dilution of promoter shareholding, dropping from 48.75% to 36.87%.

While the capital infusion is expected to provide a short-term boost and improve subscriber retention, the company’s ability to navigate the competitive landscape and achieve sustainable profitability remains uncertain. As Vodafone Idea embarks on this pivotal phase of financial restructuring, the industry and investors keenly observe its journey towards resurgence amidst formidable challenges.

Jhumpa Lahiri

Jhumpa Lahiri

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