Vodafone idea ‘s shares zoomed on Monday after the government agreed to convert interest payments worth ₹16,133 crore into equity.- The share conversion will make the government the largest shareholder in Vodafone Idea, with a stake of 33%.
- The government remains a passive investor, leaving the Aditya Birla Group and Vodafone Plc as the telco’s key decision makers.
Shares of Vodafone Idea zoomed 25% on Monday and hit higher circuits after the government agreed to convert interest charges worth ₹16,133 crore into equity.
The move breathed new life into the telco’s efforts to raise funds to make payments to suppliers and sign contracts with telecom equipment manufacturers and roll out its 5G network.
The stock price of the troubled telecom company is back to December 2022 levels, erasing the losses it has suffered so far this year.
“The total amount to be converted into shares is ₹ 16133.18.48.990. The company has been instructed to issue 1613,31,84,899 shares with a par value of ₹10 each at an issue price of ₹10 each,” Vodafone Idea said in a stock application on Feb. 3.
The share conversion will pave the way for the government to become Vodafone Idea’s largest shareholder long after the telecom reform package was announced in September 2021.
As a result, Aditya Birla Group’s stake will be 31.8% while Vodafone Plc’s stake will be 18.3%. This is a reduction of the existing 75% stake held by the two promoters.
Government taking a stake in Vodafone Idea ‘could be a cure worse than the disease’, experts say
Shares of Vodafone Idea zoomed 25% on Monday and hit higher circuits after the government agreed to convert interest charges worth ₹16,133 crore into equity. The move breathed new life into the telco’s efforts to raise funds to make payments to suppliers and sign contracts with telecom equipment manufacturers and roll out its 5G network. The stock price of the troubled telecom company is back to December 2022 levels, erasing the losses it has suffered so far this year.
However, Aditya Birla Group and Vodafone Plc will continue to run the company. Vodafone Idea’s management has already stressed that the government will not take a seat on the company’s board, nor will it make decisions about the company’s activities.
Capital injection key to the future of Vodafone Idea
According to analysts, capital injection remains a key to Vodafone Idea’s future. The telco has struggled to retain subscribers while its rivals
In the company’s post-result investor call in the second quarter, Akshaya Moondra, chief executive officer of Vodafone Idea, said: “We are trying to complete the financing quickly so that some of the backlog we have can be cleared.”
Vodafone Idea needs money not only to finance its capital expenditures but also to pay off its debts. Current earnings before interest, taxes, depreciation and amortization (EBITDA) of ₹8,700 crore in FY23 is insufficient to service debt, according to a Motilal Oswal report.
Capex is another puzzle piece for the telco to solve. Vodafone Idea has yet to roll out its 5G offering, even though Jio and Airtel 5G services have been available in various parts of the country since October 2022.
“The long-awaited capital raise remains critical to provide immediate liquidity and investment in the 5G rollout and 4G infrastructure expansion. Vodafone Idea acquired 5G spectrum in the 3300 MHz and 26 GHz bands during the recent auction (September 2022), but unlike Reliance Jio and Bharti Airtel, it has not deployed the spectrum and is also significantly behind the rollout of the 4G network,” said the Motilal Oswal report.
It remains to be seen whether the share conversion will give investors enough confidence about the future of Vodafone Idea, and whether it will be enough to inject funds that the telco desperately needs.
Breathing space for the stock and the biggest one-day rise of almost 22% as the government agrees to convert the AGR rights into equity. The debt was about 16133 cr and now 1613.3 cr shares were to be issued of INR 10 par value at an issue price of INR 10 each. FM also said: Shares of $IDEA.NSE will not be owned by Dept or Telecom, but owned by DIPAM Now look at Vodafone Idea’s shareholding as follows (as at 12/31/22)•Promoter – 74.99 % (approximately)•Public – 25.01% (approximately) After this deal, the promoter’s shareholding would be about 50%, a trim of about 24.99%. The company is not debt free and has also been trying to raise money. According to the technical view, this stock is facing resistance around 9 levels. If these levels are exceeded, we could soon see 12+. RSI at 73 indicates that it may cool down a bit and any new entry into this should be avoided. $IDEA.NSE
— (@PritiTiwari) 06 February 2023
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