Shares of Vodafone Idea Ltd. fell after its board authorized a rescue plan giving almost 36 percent stake to the govt in lieu of past dues.
Shares of Vodafone Idea Ltd. plunged after its board approved a rescue plan that gives almost 36 percent stake to the government in lieu of past dues pushing it to be the largest shareholder in the unprofitable wireless phone operator.
The restructuring in which some of the government dues will be converted to equity will result in dilution for all existing shareholders of the company including the founders, India’s no. 3 wireless carrier said in an exchange filing Tuesday. Vodafone Group Plc will own around 28.5 percent and Aditya Birla Group will have about 17.8 percent in the company after the conversion, it said.
An Indian government representative did not present any instantaneous comments on the proposed plan. Vodafone Idea’s shares plummeted almost 21 percent in Mumbai on Tuesday – most since March 2020 – while the benchmark S&P BSE Sensex advanced 0.4 percent.
The equity conversion plan gives the Narendra Modi-led government more power in the game in rescuing Vodafone Idea as well as removes the need for any immediate cash outgo from the hard-pressed wireless operator. The carrier, which owes 160 billion rupees ($2.2 billion) to the state exchequer for spectrum and other dues, hasn’t reported an annual profit since Reliance Jio Infocomm Ltd. sparked a brutal price war in 2016.
While the move avoids bankruptcy for the joint venture between the Vodafone Group and billionaire Kumar Mangalam Birla’s conglomerate, it’ll be a stopgap step for the company that’s been losing customers in droves. Investors will also be concerned about what the sudden change into state control means.
It will Cease Bankruptcy
“While this would stave off the immediate danger of bankruptcy, it does not augur well for any equity investor in a private company” in the company, said Utkarsh Sinha, managing director at consultancy Bexley Advisors in Mumbai. “Obvious concerns about its performance as a semi-state run unit aside, this sends a very negative signal to the business community.”
Its subscriber base had carved down to 253 million in the quarter ended Sept. 30 as it posted another quarterly loss. Birla had offered to hand over his stake in Vodafone Idea to the government in a June letter last year in a bid to keep the carrier afloat, according to a local news report.
Amid industry strife, India in September last year gave operators more time to pay government dues and the option to convert the back fees into equity if needed — an option that Vodafone Idea has now exercised after struggling to raise funds.
The carrier announced plans in 2020 to raise as much as 250 billion rupees to help the company win airwaves in a planned spectrum auction as well as boost its telecom infrastructure. It was hopeful of being able to raise funds after the relief package from the government but hasn’t had much success so far.
Anticipated BSNL Will Be Sold Soon
The government of India has acquired 36% shares in Vodafone-Idea to emerge as the biggest stakeholder. There is criticism that BSNL is slowly dying low death, only to get sold by the Modi Government soon.
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