Telecommunication major Idea Cellular has reportedly sought higher valuation for its equity at above Rs 134 per share in the proposed merger with Vodafone India, even as the negotiation between the two to unite their businesses are close to finalisation, CNBC TV18 reported on Thursday citing unidentified sources. The price sought by Idea is at about 19% premium to its Wednesday’s closing price of Rs 112.9.

Idea is reportedly insisting on valuing its equity at base price of Rs 134 per share for further negotiations, since it was the price at which it last issues shares in a qualified institutional placement in 2014, CNBC TV18 reported. The company is seeking to ensure that the institutional investors, who put in money at the time, earn returns on their investments, the news report said.

Partnership of equals

As is widely known, India’s second-largest telecommunication services provider Vodafone and the third-largest operator Idea Cellular are in talks for an all-share merger, amid the ongoing consolidation in the Indian telecom industry reeling under the pressure of intense competition from Reliance Jio’s free service offers.

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Both the companies entered into merger negotiations seeking equal partnership in the combined entity. Vodafone’s UK parent and Idea Cellular’s parent Aditya Birla group may hold equal stakes at 37% each in the proposed merged entity, with the public holding  the remaining 26% stake, according to the news reports.

However, given that Idea Cellular’s valuation is at a steep discount to Vodafone India’s estimated Rs 50,000 crore, Aditya Birla Group might need to pump in sizeable equity capital to bring the group’s equity share at par with the UK company. Any change in the valuation of the current equity will impact the money required to be brought in by Aditya Birla Group.

Debt burden

Reportedly, Idea Cellular is also looking to monetise its telecom tower assets in order to raise cash, pare debt and boost valuations ahead of the merger. Idea Cellular has equity stake in Indus Towers, which is a joint venture between Idea, Bharti Airtel and Vodafone India.

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Notably, earlier last month, the US-based private equity firm Providence Equity Partners sold its entire 3.3% equity stake in Idea Cellular in a block deal for about Rs 1,325 crore at Rs 110.30-110.45 per share.

A possible Vodafone-Idea combine, with a total subscriber base of 39 crore, will surpass Bharti Airtel as the largest telecommunication company, and will be far ahead of Reliance Jio’s 10 crore. Further, the combined entity would have 43% of the revenue market share and 40% of the active subscriber base, research firm CLSA said. The two operators complement each other, with Vodafone having strong presence in urban areas and Idea being an established player in the hinterland. The new capital that Vodafone brings in may be used to pare the substantial debt that Idea has on its books.