Firm to raise Rs 3,250 cr from Aditya Birla Group and eyes a Rs 3,500-cr issue before merger.
Idea Cellular, the telecom arm of the Aditya Birla Group, will be raising over Rs 6,700 crore, as the company prepares for the proposed merger with Vodafone India. In a statement on Monday, Idea said it will raise `3,250 crore through preferential allotment of nearly 33 crore equity shares to the promoter group entities – Birla TMT Holdings, Elaine Investments (Singapore), Oriana Investments (Singapore) and Surya Kiran Investments (Singapore). The issue will be at a price of Rs 99.50 per share, the company said in a statement on Thursday. The exercise is expected to be completed by early February 2018, following which the stake of the promoter group in Idea will increase to about 47.2% from existing level of close to 42.4%. The above equity issue is subject to approvals from shareholders and other regulatory authorities. The extraordinary general meeting (EGM) of shareholders will be convened on January 30, 2018 to seek their approval on the same. The company has also constituted a committee of board members to evaluate raising of up to Rs 3,500 crore, through preferential issue, qualified institutional placement (QIP) or rights issue. “Appropriate disclosures will be made once the board approves such issuance of additional capital based on the recommendations of the committee,” the statement said.
Kumar Mangalam Birla, chairman, Idea Cellular, had said that the group remains committed towards the telecom business and is in the process of creating a large digital infrastructure. “At a time when the telecom industry is going through a challenging environment, this equity infusion by the group in Idea is another step towards reinforcing the group’s commitment,” Birla said. In a separate statement, Vodafone said the proceeds from this funds-raising, in addition to Rs 7,850-crore of proceeds from the announced disposals of Vodafone India’s and Idea’s standalone tower businesses, will be used to strengthen the balance sheet of the merged entity of Vodafone India and Idea. “As a consequence of the change in shareholding (to 47% from 42%) in Idea following the capital raise, ABG (Aditya Birla Group) and Vodafone have agreed that ABG will buy a minimum of 2.5% of the merged entity from Vodafone, or such higher stake required in order for ABG to ultimately own at least 26% of the merged entity,” it said.
Vodafone will receive minimum proceeds of Rs 1,960 crore from such sale and its ownership in the combined entity will settle at 47.5% on completion. Vodafone said the changes to the capital structure were already contemplated in the scheme of arrangement for the merger. Vodafone’s stake in the combined entity in excess of 45.1% will not be subject to any lock-up after closing and Vodafone will be free to sell the relevant shares without restrictions, it added. The capital infusion by ABG in Idea comes at a time when the telecom sector in India is reeling under severe financial stress, following Reliance Jio’s entry with free services followed-up with rock-bottom tariffs. Forced to follow the lead so as to retain their customer base, Idea, Airtel and Vodafone took a beating on profitability. Consolidation soon followed with Idea and Vodafone deciding to merge.
The $23-billion Vodafone-Idea merger deal announced in March 2017 will create a combined entity with total revenues at over Rs 80,000 crore, 400 million customers, 35% subscriber market share and 41% revenue market share. At the time of the merger, IDFC Securities had said the disruption led by Reliance Jio had hastened the deal, but the key driver was the change in industry structure. “Broadband (unlike voice) requires large spectrum holding on pan-India basis along with huge capex for building capacity to make requisite return on investment. Hence, the merger of complimentary assets would build scale that would drive higher RoI.”
In November, Idea and Vodafone agreed to sell their respective stand-alone tower businesses in India to ATC Telecom Infrastructure (American Tower) for an aggregate enterprise value of Rs 7,850 crore. This followed Idea and Vodafone India voicing their intention to sell the stand-alone tower businesses to strengthen the balance sheet of the combined entity. This along with the potential monetisation of Idea’s 11.15% stake in Indus Towers, is expected to augment the long term capital resources of the company. The CCI (Competition Commission of India) has granted the approval to the proposed combination of Vodafone-Idea and the scheme has been approved by the shareholders and creditors of both Idea and Vodafone India. However, the NCLT and department of telecommunications (DOT) approvals are pending. Vodafone said that it now expects the merger to be completed during the first half of calendar year 2018.