Debt-ridden telecom operator Vodafone Idea’s shares zoomed 24.82% on Monday’s early trades to reach an intraday high of ₹ 8.55 apiece on the National Stock Exchange (NSE). This happened after the government gave the green light to convert the company’s interest dues worth ₹ 16,133 crores to equity, smoothing out a major obstacle.
Vodafone Idea’s shares reached an intraday high of ₹ 8.55 apiece. They were trading at ₹ 8.35 apiece, up 21.90% at 11:46 AM.
Why did Vodafone Idea need help?
Vodafone Idea’s debt has mounted to more than ₹ 2 lakh crores and it opted to convert more than ₹ 16,000 crores of interest liability payable to the government into equity.
Two years ago, Vodafone Idea had approved plans to raise ₹ 25,000 crores. However, the company was able to raise only ₹ 5,000 crores from the promoters.
In addition, the company’s proposal to settle dues of ₹ 1,600 crores with equipment vendor ATC Telecom Infrastructure through the issue of equity-convertible debt bonds has already lapsed once because it was subject to the conversion of interest dues into equity by the government.
How will the amount be converted?
The government approved the conversion after receiving an assurance from the company’s promoters that they would infuse additional capital. The conversion will be done at ₹ 10 apiece. The government will have a 35.8% stake in the company and will be its largest shareholder. Meanwhile, the promoters’ holding will come down to 50% from 74.99%.
“We had sought a firm commitment that the Aditya Birla Group would run the company and bring necessary investments. Birlas have agreed and hence we have agreed to convert. We want India to be a three-player market plus BSNL and ensure healthy competition for consumers,” said Ashwini Vaishnaw, Union Minister of Communications, India.
Vodafone Idea said in an exchange filing said that the ₹ 1,61,33,18,48,990 is the total amount to be converted into equity shares and it has been directed to issue 16,13,31,84,899 equity shares of the face value of ₹10 each at an issue price of ₹ 10 each.
Why was the equity conversion held back for so long?
This move has been pending for more than a year and it may help the company refinance bank debts. In addition, it may help the company to repay dues to Indus and ₹ 1,600 crore debentures issued to ATC Telecom can also go through. Meanwhile, Indus Towers’ shares also gained 13.61% by 11:56 AM to trade at ₹ 163.35 apiece on the NSE.
The government announced a relief package for the telecom sector in September 2021, allowing Vodafone Idea to convert interest on deferred adjusted gross revenue owed to the government into equity. Vodafone Idea has been waiting for the move ever since
The delay in implementing the plan had left the telco in a difficult situation. The government was waiting until the company received additional funding, while investors were understood to be waiting for the government to move first.
Vodafone Idea is a mid-cap company with a market capitalization of ₹ 22,001 crores. It is engaged in the business of mobility and long-distance services, trading of handsets and data cards.
Written by Simran Bafna
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