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April 27, 2024

Vodafone Idea’s FPO Rewards Investment Banks: Rs 287 Crore Windfall

Vodafone Idea’s FPO Yields Rs 287 Crore Windfall for Investment Banks

Vodafone Idea Limited (VIL) recently concluded its follow-on public offer (FPO), marking a significant turning point for the struggling telecom operator and a lucrative venture for the three investment banks overseeing the Rs 18,000 crore share sale. As per the final prospectus filed by the Mumbai-based firm, it paid Rs 287 crore, which accounts for 1.6 per cent of the issue size, as book running lead manager (BRLM) fees.

This fee ranks as the second-highest ever paid for a domestic FPO or IPO, according to PRIME Database. One 97 Communications (Paytm) holds the record, having paid Rs 324 crore in BRLM fees for its Rs 18,300-crore IPO in November 2021. Despite this, Paytm’s IPO disappointed, with shares plummeting 27 per cent on debut, marking the worst first-day performance for an IPO of Rs 1,000 crore or more.

The VIL deal is particularly profitable for the BRLMs as the fee pool will be divided among only three investment banks: Axis Capital, Jefferies, and SBI Capital Markets. Typically, a deal of this magnitude involves at least six bankers. For instance, Paytm had appointed seven BRLMs.

VIL’s FPO stands as the largest ever in the domestic market. When considering both IPOs and FPOs, it ranks as the third-largest, following the IPOs of state-owned LIC (Rs 20,557 crore) and Paytm, surpassing YES Bank’s Rs 15,000 crore FPO in 2020.

However, not all large deals are as lucrative for investment banks, especially those involving government-owned entities. LIC paid a modest fee of Rs 11.8 crore, split among 16 investment banks that worked on its IPO. Similarly, YES Bank paid a relatively low fee of Rs 93 crore to eight bankers for its FPO, which was part of a government-approved rescue package.

Despite being the largest shareholder in VIL, the government is classified as a “public” shareholder, while the Aditya Birla group and UK’s Vodafone Plc are its promoters. The complexity of VIL’s deal, given its high debt levels and uncertain business outlook, made it challenging to convince long-term investors about the turnaround story.

An investment banker remarked, “The over Rs 2,075 crore equity infusion by the Birla group at a price which was 35 per cent above the FPO price set the tone for the deal.”

Following the listing of new shares, Aditya Birla Group Chairman Kumar Mangalam Birla stated that the equity infusion would aid the company in making a “smart turnaround,” emphasizing the necessity for three robust wireless telephony networks in the country.

Post-deal, Jefferies’ and Axis’ rankings have soared on the 2024 equity capital market (ECM) league table to three and five, respectively, according to Dealogic data. American investment banks Citi and BofA currently hold the top positions.

Industry players note that the VIL deal has added luster to the calendar year 2024, which has begun on a strong note. Investment banks pocketed a record $123.4 million (Rs 1,000 crore) for handling ECM deals during the first three months of 2024, marking a 2.34-fold increase compared to Q1 of 2023, according to LSEG Data & Analytics.

Jhumpa Lahiri

Jhumpa Lahiri

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