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Rs 25K cr rights issue not enough for Vodafone Idea: Experts
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SME Times News Bureau | 15 Apr, 2019
As telecom major Vodafone Idea (VIL) opened its rights issue on
Wednesday for the next two weeks with an aim to raise Rs 25,000 crore,
sector experts say the fund would not be enough for the company given
its high debt and the highly-competitive market.
In the meantime,
Bharti Airtel too has announced that on April 24 its committee for fund
infusion would decide on the shareholders who would be able to
participate in its rights issue for around Rs 25,000 crore.
Analysts
say Airtel is in a better financial position than Vodafone Idea and
unlike the newly-merged entity, the amount raised from the rights issue
by Sunil Bharti Mittal-led Airtel would be sufficient for the time
being.
Vodafone Idea is offering 2,000 crore shares at a price of
Rs 12.50 apiece. The entitlement ratio of the issue, which will close
on April 24, has been fixed at 87 rights shares for every 38 currently
held.
Under rights issue, existing shareholders are offered to
purchase additional stock shares, known as subscription warrants, in
proportion to their existing holdings.
In a rights offering, the
subscription price at which each share may be purchased is generally
discounted relative to the current market price. Rights are often
transferable, allowing the holder to sell them in the open market.
"Vodafone
idea is very stretched because their Ebitda has fallen to about $650
million(around Rs 4,495 crore), their debt is also quite high and their
leverage as measured by debt-to-Ebitda too is high," Nitin Soni,
Director for corporate ratings at Fitch Ratings, told IANS.
He
said that Airtel is a diversified company and has operations in Africa
as well while Vodafone Idea is a telecom-specific company which has
severely deteriorated its financials.
"In that light, their
(Airtel's) equity injection is sufficient and they are going to raise
another $3 billion from African IPO and sale of assets, but for Vodafone
idea it is insufficient and they might have to raise more money in
future because their capex plan is about $3.5-4 billion," Soni said.
He
added: "They (Vodafone Idea) need to invest heavily to avoid any
network congestion and their Ebitda has fallen much more than Bharti's.
So all in all they would probably need more equity, or stake or sale of
other assets".
According to the company's promoter shareholders,
Vodafone Group and Aditya Birla Group have confirmed their participation
of up to Rs 11,000 crore and up to Rs 7,250 crore, respectively, in the
rights issue.
"It is not compulsory that the rights issues of
companies are fully subscribed over time, it is up to the market
conditions and existing shareholders, and whether they rely on the
management and the future expansion plans of the company," said Manish
Yadav, Head of Research, CapitalAim.
Amit Gupta, Co-Founder and
Chief Executive Officer at Trading Bells, said the fund would work for
two or three quarters but the company would require additional infusion
after that.
"Vodafone Idea has a overall debt of Rs 1,23,000
crore with a gross debt-to-Ebitda (earnings before interest, tax,
depreciation and amortisation) ratio of 33.30. After infusion of the
equity capital through the rights issue, the debt would reduce to Rs
98,000 crore and its debt-to-Ebitda ratio would decline to 26.50 which
would still be higher than that of its competitors Bharti Airtel and
Reliance Jio," Gupta said.
The company is also looking to sell
its 11.5 per cent stake in Indus Towers in the next two to three months
and raise around Rs 5,500 crore.
Off late, apart from loss in
revenue, Vodafone Idea has also lost a large number subscribers to both
Bharti Airtel and Reliance Jio.
Vodafone Idea, the largest
telecom operator in terms of subscribers, lost 35.87 lakh users taking
its total base to 41.52 crore while both Jio and Airtel added to their
subscriber base.
From the industry perspective, Prashant Singhal,
Emerging Markets TMT Leader at Ernst & Young, said that although
the rights issue would help in reducing the debt, the sector being a
capital intensive industry, companies would continue to need capital for
expanding and investing their networks.
He said that
rationalisation of tariffs, which are extremely low currently, would
give a much-needed boost to the sector, apart from the capital infusion.
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