Vodafone Idea, which has been struggling financially for a long time and trying to raise funds to stay afloat, on Friday said it plans to raise up to Rs 18,000 crore through share sale in the biggest follow-on public offer.
The company’s shares will be issued, under the FPO, in a price band of Rs 10-11 apiece against Friday’s closing price of Rs 12.96 on the BSE. The higher end of the price band of Rs 11, is at a discount of 26% compared to recently approved preferential issue price to the promoter entity at Rs 14.87.
The share sale will open on April 18 (for anchor investors on April 16) and close on April 22, Vodafone Idea, which is the country’s third-largest telecom service provider, said in a stock exchange filing.
This will be the largest FPO after the previous best of Rs 15,000 crore share sale by Yes Bank in 2020.
The fundraising, which comes close on the heels of a Rs 2,075 crore capital infusion by Aditya Birla group via a preferential share issue last weekend, will help the company shore up its position in the domestic telecom market, where peers Reliance Jio and Bharti Airtel are miles ahead of it.
The funds would also help it arrest its subscriber churn owing to is weak 4G coverage, which is not available on a pan-India basis. The same will also be used to launch 5G services, and clear government debts related to spectrum.
Vodafone Idea has been losing subscribers month after month, has a gross debt of Rs 2.15 trillion crore, and has been posting quarterly losses in the range of Rs 6,000-8,000, crore.
The fundraise through FPO is part of the company’s plan to raise Rs 20,000 crore through a combination of equity and equity-linked instruments. It plans to raise another Rs 25,000 crore via debt.
“Today, our main reason for subscriber loss is because we have lack of 4G coverage vis a vis competition and these funding and the investment in capex will enable us to cover and bridge these gaps,” Vodafone Idea CEO Akshaya Moondra had said during the company’s extraordinary general meeting with shareholders earlier this month.
During April-February, Vodafone Idea lost 16.2 million mobile subscribers, taking its total base to 220.5 million, according to data from the Telecom Regulatory Authority of India (Trai).
From the proceeds of the FPO, Vodafone Idea will utilise Rs 5,720 crore for 5G launch, according to the red herring prospectus (RHP) filed by the company. To get started with 5G, the company will first set up 22,000 5G sites – 10,000 sites in the current financial, and 12,000 in FY26 – across 17 priority circles.
As on December 31, 2023, Vodafone Idea has deployed 5G through 50 sites in two services areas – Maharashtra and Delhi – at a total capital expenditure of Rs 13.2 crore.
“We have completed the minimum rollout obligations in four service areas of Maharashtra, Delhi, Tamil Nadu, and Punjab, by collaborating with original equipment manufacturers, we are yet to meet our minimum rollout obligations for our other service areas,” the company said in the RHP.
Besides 5G, Vodafone Idea will utilise Rs 3,770 crore for purchasing equipment towards setting up 26,000 new 4G sites. The company said, these new 4G sites are proposed to be set up in existing 22 service areas catering to 4G technology, on locations available with passive infrastructure providers, basis long term lease agreements.
Further, the company will utilise Rs 3,260 crore for expanding capacity of 40,750 4G sites, which may include existing 4G sites and the new 4G sites.
With regard to 4G expansion and 5G rollout, Vodafone Idea has obtained quotations from companies such as Nokia, Ericsson, Samsung, and Mavenir Systems.
The company has also proposed to pay Rs 2,175 crore deferred payment liabilities to the department of telecommunications (DoT) for the spectrum acquired in 2021 and 2022.
The rest of the FPO proceeds will be used by the company towards various general corporate purposes such as funding working capital requirements; strengthening marketing capabilities and brand-building exercises; strategic initiatives, among other things.
Analysts believe that announcement from the telecom operator is positive, but any outcome will depend on the conclusion of the fundraising process. However, even if the company raises funds successfully, it will not be able to come out of the woods given that the repair, recovery and rollout of 5G will take time to materialise, analysts said.
In FY26, once the moratorium on regulatory dues is over, the company will have an obligation to pay around Rs 28,000 crore to the government. Therefore, a meaningful fundraise is crucial for the company, analysts said. From FY27 onwards, Vodafone Idea will have a debt obligation of over Rs 41,000 crore to the government.
Based on the company’s current free cash flow position, weakening of market share, and absence of fundraise, Vodafone Idea is expected to have a gap of Rs 30,000 crore FY27 onwards, according to analysts.
Vodafone Idea’s net loss for the October-December quarter narrowed to Rs 6,986 crore from Rs 8,738 crore in the preceding quarter. Revenue from operations at Rs 10,673 crore was down 0.4% QoQ.