Kotak Mahindra Bank founder Uday Kotak on Friday took a swipe at Vodafone Idea for settling the dues of its vendors by issuing preferential shares.
Without naming the company, Kotak in a post on X on Friday said that such deals are like “robbing Peter to pay Paul”. The reference was to Vodafone Idea board’s decision on Thursday to make preferential allotment of nearly 1.7 billion equity shares worth Rs 2,458 crore to its network vendors, Nokia Solutions and Ericsson India. The company had also earlier settled dues of telecom tower firm American Tower Company in a similar way.
“Financial markets create money out of thin air? A model for companies in financial difficulty: issue equity to creditors to repay their debt. If the stock is well traded, the creditor can sell in the market and get paid by investors. What is that story about Peter and Paul?” Kotak said in his post.
Through the preferential allotment of shares, Nokia will get a 1.5% stake in Vodafone Idea amounting to Rs 1,520 crore at the issue price. Similarly, Ericsson will own a 0.9% stake amounting to Rs 938 crore.
The shares will be issued at Rs 14.80 a piece, which is 35% higher than the follow-on public offer (FPO) price of Rs 11 a share. On Friday, shares of Vodafone Idea closed up 4.1% at Rs 16.7 on the BSE.
As per the terms, Nokia and Ericsson will have to hold the shares for a minimum period of six months. The proposal is subject to approval by the company’s shareholders at the extraordinary general meeting (EGM) to be held on July 10.
Post the share issue, the stake of the Aditya Birla Group and Vodafone Plc stands at 37.3%. The government’s stake is at 23.2%, while the public shareholding is at 37.1%.
Vodafone Idea’s arrangement with its vendors has come at a time when it is looking to launch 5G services and increase the 4G coverage. The share issue will make it easier for the company to place fresh orders of network equipment with its vendors.
At this stage, analysts see it as a good deal for the vendors who have converted dues into equity. This is because after the government’s equity conversion in Vodafone Idea and the company’s successful FPO, its prospects have improved, which is likely to lead to an upside in the share price.
In October, 2022, Vodafone Idea had issued optionally convertible debentures (OCDs) to its tower vendor, ATC worth Rs 1,600 crore in lieu of dues of over Rs 2,000 crore. Later in March 2024, ATC converted OCDs worth Rs 1,440 crore into 1.44 billion fully paid-up equity shares at Rs 10 each, which gave it a 2.9% stake in the company. Subsequently, in April, ATC sold its stake in Vodafone Idea, mopping up around Rs 1,840 crore.