Vodafone Idea shares: Rs 45,000 cr fund raise via equity & debt a step in right direction

Shares of Vodafone Idea Ltd (VIL) will be in focus on Wednesday morning after the telecom operator announced a total of Rs 45,000 crore in fund raising, which would include raising of up to Rs 20,000 crore via a combination of equity and equity linked instruments. The promoters intends to participate in the proposed equity raise, as committed earlier.

Vodafone Idea said through a combination of equity and debt, the company plans to raise around Rs 45,000 crore. The company’s bank debt currently stands at less than Rs 4,500 crore, it said adding that the equity and debt fund raising will enable the company to make investments towards significant expansion of 4G coverage, 5G network rollout and capacity expansion.

"Operationally, this fund-raise is surely a step in the right direction. This will enable VIL to improve its 4G services, and catch up (to some extent) with peers on 5G rollout, to be able to arrest the subscribers decline, and make meaningful EBITDA to be able to service the debt obligations. Financially however, the fund-raise size is too small, to have any meaningful impact," Nuvama said in a note.

Vodafone Idea said the investments will enable the company to improve its competitive positioning and offer an even better customer experience. VIL insisted the proposed fund raise follows a marked improvement in operating metrics. The telecom operator said it has managed to grow its 4G subscriber base and ARPUs consecutively for the last 10 quarters. Further, the company said it remains focused on providing competitive data and voice experience at all locations where it is present.

Vodafone Idea’s board of directors have approved raising of funds by way of issue of equity shares or by way of issue of any instrument or security, including convertible debentures, warrants, or other securities convertible into equity shares, global depository receipts, among others, subject to requisite regulatory or statutory approvals.

"Overall, VIL continues to be in a precarious situation given its: high debt of Rs 2.5 lakh crore; ii) persistent subscriber losses; and iii) inability to do 5G capex and upgrade the network. We continue to be negative on the stock. Our FY26 estimates do not yet include spectrum dues repayment as moratorium period ends. Our valuation too does not include the AGR dues," Nuvama said.

Vodafone Idea said it can also look at raising these funds via American Depository Receipts (ADRs) or Foreign Currency Convertible Bonds (FCCBs) or by way of a composite issue of non-convertible debentures with or without warrants entitling the warrant holder(s) to apply for equity shares or any combination thereof for an aggregate amount of up to Rs 20,000 crore by way of a further public offer, private placement including preferential issue, qualified institutions placement (QIP), or through any other permissible mode or any combination in one or more tranches.

"The board has authorised the capital raising committee to evaluate and decide the potential route of fund raising, including all related matters. The board also approved convening of an extraordinary general meeting of the Company on Tuesday, April 2, 2024, inter-alia, to approve the above matters," Vodafone Idea said.

Besides this, Vodafone Idea said it remains actively engaged with its lenders for tying-up the debt funding, which will follow the equity fund raise.

Vodafone said the telecom operator is also steadfast in building a differentiated digital experience adding several digital offerings in the recent quarters. The Company has consistently shown an improvement in performance even with limited investments. With the proposed fund raise and the positive operational developments, the Company is confident of effectively competing in the market