Vodafone Idea Shares Surge 25% as Government Converts Dues into Equity

Vodafone Idea witnessed a significant surge of 25% in its shares on Monday, hitting an upper circuit, following the government’s decision to convert interest dues totaling ₹16,133 crore into equity. This move injects fresh momentum into the telecom company’s efforts to raise funds, enabling it to meet vendor payments, engage with telecom equipment manufacturers, and advance its 5G network rollout.

Equity Conversion Details

In an exchange filing on February 3, Vodafone Idea disclosed that the total amount to be converted into equity shares is ₹16,133,18,48,990. The company has been directed to issue 1,613,31,84,899 equity shares with a face value of ₹10 each, at an issue price of ₹10 each. This equity conversion aligns with the telecom reforms package announced by the government in September 2021.

Impact on Shareholding Structure

As a consequence of the equity conversion, the government is poised to become the largest shareholder of Vodafone Idea. The Aditya Birla Group’s stake will decrease to 31.8%, while Vodafone Plc’s stake will be reduced to 18.3%, marking a significant shift from the existing combined stake of 75% held by the two promoters. However, both the Aditya Birla Group and Vodafone Plc will retain their roles in driving the company forward, with no government intervention in board decisions or operational matters.

Significance of Capital Infusion

Analysts emphasize that capital infusion remains crucial for Vodafone Idea’s future viability. The company faces challenges in subscriber retention, particularly in comparison to its competitors, Reliance Jio and Bharti Airtel, which have witnessed consistent growth in both subscriber numbers and average revenue per user (ARPU). Addressing vendor payments and servicing debt obligations are among the immediate priorities for the company, with its current earnings before interest, taxes, depreciation, and amortization (EBITDA) deemed insufficient for debt servicing.

Capital Expenditure and 5G Rollout

Furthermore, Vodafone Idea is yet to roll out its 5G services, lagging behind competitors who have already launched 5G networks in various parts of the country. The recent spectrum acquisition in the 3300Mhz and 26GHz bands underscores the urgency for capital infusion to invest in 5G infrastructure and extend 4G network coverage. Without adequate funds, Vodafone Idea risks falling further behind in network expansion and technological advancement.

The equity conversion signals a positive step towards addressing Vodafone Idea’s financial challenges, but the company’s ability to attract investor confidence and secure additional funding remains pivotal for its long-term sustainability and competitiveness in the telecom industry.