Rs 25,000 crore opportunity for Idea shareholders; should you buy into Vodafone Idea rights issue?

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Updated: April 10, 2019 11:38:53 AM

Amid intense competition from billionaire Mukesh Ambani-led Reliance Jio, Vodafone Idea intends to raise Rs 25,000 crore rights issue which opened for subscription today. We take a look at investors should go for the issue.

Axis Trustee Services, Reliance Communications, Anil Ambani group, IndusInd Bank, RCom,  IndusInd Bank, BSE“Investors should subscribe to the rights issue as it is attractively priced,” says Naveen Kulkarni, Reliance Securities.

Amid intense competition from billionaire Mukesh Ambani-led Reliance Jio, Vodafone Idea intends to raise Rs 25,000 crore rights issue which opened for subscription today. Notably, the telecom major plans to issue up to 2,000 crore fully paid-up equity shares of Rs 10 face value at a price of Rs 12.50 per share. While the price seems attractive, Idea shareholders looking to take the plunge should have a longer term horizon. 

“The Rights issue prices is respectably lower than the current market price which makes it attractive. Also, with promoters pledging minimum subscription and promising to absorb all of the unsubscribed portion, goes down well sentimentally,” consulting technical analyst Milan Vaishnav told Financial Express Online. Notably, the issue was priced at a deep discount of nearly 60% as compared to the market price on March 30th. According to Vaishnav, investors must have a time horizon of 2-3 years, if they wish to go for the issue, as the telecom industry is capital intensive and returns typically take longer to generate.  

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Investment advisor Sandip Sabharwal says that Vodafone Idea’s rights issue is avoidable as the industry pressures are unlikely to improve. “There are much better opportunities to invest in the markets. Investors should not get allured by the low price as the price is misleading,” Sandip Sabharwal told Financial Express Online.

Notably, both the promoter groups (Vodafone and Aditya Birla) have confirmed their participation of up to Rs 11,000 crore and up to Rs 7,250 crore, respectively, in the issue. The issue will remain open till April 24 and the last date for request of split application forms will be April 17.

“Investors should subscribe to the rights issue as it is attractively priced. Also not subscribing will entail substantial dilution of value for investors,” Naveen Kulkarni, Head of Research, Reliance Securities told Financial Express Online. For the mega issue, the  entitlement ratio is fixed at 87 Equity Shares for every 38 Equity Shares held by the eligible shareholders of the Company on the record date. Sharing the strategic rationale for the issue, Balesh Sharma, CEO Voadfone Idea said, “We believe the proceeds from the issue, coupled with monetisation of our stakes in Indus Towers, will allow us to make the required investments in the business to achieve our strategic goals.”

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