India's Vodafone Idea board approves equity allotment to Nokia and Ericsson to clear dues

Vodafone Idea is finally addressing its financial issues head-on. After its FPO, it is now issuing equity to vendors to partly clear dues.

Gagandeep Kaur, Contributing Editor

June 14, 2024

3 Min Read
Vodafone Idea login page on a smartphone
(SOURCE: AMLAN MATHUR/ALAMY STOCK PHOTO)

India's third-largest service provider, Vodafone Idea, has decided to issue 1.66 billion shares worth around 24.6 billion Indian rupees (US$294 million) on a preferential basis to Nokia and Ericsson to settle a part of the outstanding dues owed to the vendors.

The company will issue shares worth INR15.2 billion ($181.9 million) to Nokia Solutions and Networks India and shares worth INR9.4 billion ($112.27 million) to Ericsson India at INR14.8 ($0.17) per share. This is at a 35% premium per share when compared with the recent follow-on public offer (FPO) and comes with a lock-in period of six months. 

"It further bolsters VIL's capex rollout for building a top quality 4G and 5G network to contribute towards India's digital transformation," says the company's filing to the Bombay Stock Exchange.

 If this equity issuance is approved by Vodafone Idea shareholders at the Extraordinary General Meeting (EGM) to be held on July 10, Nokia and Ericsson will hold 1.5% and 0.5% of the company, respectively. The promoters, Aditya Birla Group and Vodafone Group, will together hold 37.3%, the government of India will hold 23.2%, and the balance 37.1% will be public shareholding.

"With this equity issuance, VIL [Vodafone Idea] has raised ~Rs. 24,000 Crore [INR240 billion] of equity including conversion of 1,440 OCDs [optionally convertible debentures] in Mar'24 by ATC India (out of 1,600 OCDs issued), FPO issue in Apr'24 and preferential issue to promoters in May'24," says the company's filing. In addition, Vodafone Idea is also in active discussions with its lenders to raise debt funding of around INR250 billion ($2.99 billion).

"VIL is all set to participate in the industry growth with the right investments to expand its 4G coverage and offer 5G experience to its customers while remaining focused on its execution capabilities. As VIL embarks on its growth journey, support from key stakeholders is critical and the agreement with Nokia and Ericsson reaffirms these vendors as long-term partners of the Company, and sets the stage for the next phase of our growth," said Akshaya Moondra, CEO of Vodafone Idea.

The fundraising is crucial for the company to compete aggressively to regain lost market share. Vodafone Idea has been struggling because of massive debt, which meant that it wasn't able to upgrade its network or launch 5G services.

The massive fundraising exercise this year is likely to help the company turn around its fortunes and hopefully emerge as a strong competitor to Bharti Airtel and Reliance Jio. Vodafone Idea reported a loss of INR76.8 billion ($918.69 million) in the quarter ending March 2024.  

The company's decision to clear dues by issuing equity is being questioned by some in the industry, especially because the company has offered a 35% premium over the FPO. Uday Kotak, founder and Director of Kotak Mahindra Bank, a prominent Indian bank said in a tweet: "Financial markets create money out of thin air? A model for companies in financial difficulty: issue equity to creditors to repay their debt. If the stock is well traded, the creditor can sell in the market and get paid by investors. What is that story about Peter and Paul?"

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About the Author(s)

Gagandeep Kaur

Contributing Editor

With more than a decade of experience, Gagandeep Kaur Sodhi has worked for the most prominent Indian communications industry publications including Dataquest, Business Standard, The Times of India, and Voice&Data, as well as for Light Reading. Delhi-based Kaur, who has knowledge of and covers a broad range of telecom industry developments, regularly interacts with the senior management of companies in India's telecom sector and has been directly responsible for delegate and speaker acquisition for prominent events such as Mobile Broadband Summit, 4G World India, and Next Generation Packet Transport Network.

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