The 'return' of Vodafone Idea?

The fundraising plans of Vodafone Idea, India’s third largest service provider, are finally beginning to bear fruit.

The company plans to raise a total of 450 billion Indian rupees (US$5.4 billion) through a combination of equity and debt instruments. Recently, its board approved raising INR20.8 billion ($249 million), and now media reports suggest that the company is planning to launch a Follow-on Public Offer (FPO) to raise around INR200 billion ($2.4billion) later this month. The FPO will be followed by debt funding of INR250 billion ($3 billion). 

In an FPO, an already listed company issues new shares in the market. Vodafone Idea has already secured commitments from anchor investors, according to media reports. Typically, almost 50% of the intended FPO is reserved for anchor investors. The fund-raising initiatives are backed by the Indian government, which holds 33% in the company.

Vodafone Idea, which is debt-ridden, has been struggling to raise funds for several years now. It has continued to lose subscribers and market share because it has been unable to invest in network upgrades. Vodafone Idea’s market share dropped from 24.21% in February 2021 to 18.93% in February 2024. It is the only private telco yet to launch 5G services.

What does a resurgent third telco mean for India?

The service provider will use a part of the funds to build a 5G network, while also bolstering its 4G network. While both Reliance Jio and Bharti Airtel have already completed their 5G rollouts in India, Vodafone Idea has said it plans to launch 5G services later this year. The delay in offering 5G to customers means that Vodafone Idea is losing its high-paying subscribers who want to start using 5G services.

Another part of the funds will also be used to reduce debt. The company also needs to pay vendors who will likely only supply 5G gear to the operator when previous payments are cleared. Vodafone Idea’s fundraising therefore offers a ray of hope to the vendors who can look forward to more 5G-related orders this year. 

While a resurgent Vodafone Idea bodes well for the Indian telecommunications industry, this fundraising does not mean that the operator has completely overcome its financial challenges. It will take several years of sustained effort for the telco to regain lost ground.