Mumbai: Vodafone Idea, which has been struggling to raise growth capital for long, is in the midst of launching the largest follow-on-public offer (FPO) later this week.
India's third largest mobile operator has a poor track record in fundraising since its merger with the Aditya Birla group, but if the Rs 18,000-crore FPO issue, for which it has fixed the price-band at Rs 10-11 (around 15 percent discount), sails through it will be the largest FPO in the history of the domestic capital markets.
The previous record was the Rs 15,000-crore issuance from the troubled private sector lender Yes Bank in July 2020.
However, had the Rs 20,000-crore issue from Adani Enterprises sailed through in January 2023, that would have been largest.
After the damning Hindenburg report, which alleged a slew of bad practices including price rigging and insider trading in its stocks a few days before the issue was to hit market, the company had called off the issue a day after its successful sale since on the first day after the report, the stock tanked 28.5 percent.
Vi also had on record the highest rights issue raising Rs 25,000 crore in 2019 - a year after their merger.
"We've allocated Rs 5,720 crore from the FPO for the 5G capex to begin with. We are also in active discussion with our lenders for a Rs 25,000 crore loan. We already have raised Rs 2,075 crore from our one of our promoters (Birlas) in the recent rights issue. So, once the funding is there, our effort will be to expedite the ordering as quickly as possible. A lot of groundwork has happened, the trials have happened. After that normally it takes six to nine months for the service's roll-out," chief executive Akshaya Moondra told reporters announcing the FPO that opens Thursday.
On geographical coverage, he said, "We hope to cover 40 percent of our revenue market with the higher speed 5G network, and from a geographical reach, our focus for 5G and 4G will be limited to our 17 priority circles, which get us 98 percent of our topline, and 92 percent for the industry."
As of December 2023, Vi had over 223 million subscribers or 19.3 percent market share in the near-1 billion customer market.
"As decided earlier, we'll not be looking at geographical expansion for growth but will be redirecting our focus onto customer retention by upgrading our technologies and services," Moondra said. But despite repeated questions, he did not offer an answer as to how much the company needs to set aside as capex for the 5G and widening the reach of its 4G services.
On why they started the FPO process now, Moondra said there's a right time for everything. As Vodafone Idea was unable to pay its dues to the government arising from the adjusted gross revenue arrears, the latter converted it into equity in February 2023 and today government is the single largest shareholder with 33.1 percent holding, which Moondra said will come down to around 24 percent after the FPO.
"The government conversion of our debt into equity was a crucial factor for investor confidence. So, this is the right time," he said, but parried questions about seeking more time from the government in meeting the remaining debt obligations, saying "under the regulatory and policy changes announced in September 2021, we have time till September 2025."
"Since then the debt conversion into equity, we've been actively engaging with investors. Previously, there was investor apprehension," Moondra said.
He also claimed that despite massive loss in subscribers, its average revenue per user, which at Rs 149.7 is 25 percent lower than Airtel, growth remains competitive with rivals. He attributed the lower Arpu to a higher proportion of 2G customers who number around 90 million compared to competitors like Airtel and Jio.
"Our tariffs are market-aligned, in fact, the highest. So, lower Arpu isn't due to pricing," he clarified but underlined the need for tariff revision in the interest of the industry as none of the players are making money on the capital cost at the current Arpu.
Admitting that the primary reason for subscriber loss is poor or a lack of 4G coverage, he said they aim to improve its 4G network with the FPO funds and address subscriber loss. "That's what this investment will tackle," said Moondra, adding since we have enough spectrum which is unsed now they need not participate in the forthcoming spectrum auctions.
Meanwhile, foreign brokerages are enthused with the fundraising plan. Saying that they're enthused by progress on the fundraise, Wall Street major Citi said, “combined with potential tariff hikes after elections and possibility of AGR relief (from the Supreme Court is hearing a curative petition from the industry), the FPO should significantly boost Vi cash flow position. They also said this move ‘signals’ that the government and key stakeholders want Vodafone Idea to continue as the third significant private player in the telecom sector.
Analysts at another foreign brokerage CLSA said 2024 should be decisive for Vi in terms of fundraising.
But JP Morgan said Vi is its key avoid in the sector citing its significant leverage (over Rs 1 trillion negative networth) and continued market-share losses and has been struggling to keep pace with 4G transitions with Jio and Bharti over the last three years.
