Vodafone Idea Jumps 10% on Stake Transfer Plan to Bolster Capital After Government Relief

Mumbai, May 11:Vodafone Idea shares jumped as much as 10% to hit a three-month high in a weak market after a Bloomberg report said Vodafone Group is considering transferring part of its 19% stake in Vodafone Idea to ‌the Indian unit to hold in treasury. The move is aimed at raising the capital of Vodafone Idea after the government cut a bill for outstanding spectrum fees.

The proposed stake transfer would act as an alternative to Vodafone injecting more cash into its Indian unit. Vodafone Idea may subsequently sell those shares to raise additional capital, which could be used to meet government obligations and fund expansion, as the heavily indebtedcompany works to rebuild market share against competitors such as Reliance Jio Infocomm. Loss-making Vodafone Idea is also in discussions with lenders to raise around Rs 35,000 crore, the Bloomberg report said.

At the time of writing, the stock was up 9.5% at Rs 12.31.

The combination of policy support and capital bolstering planhas triggered renewed investor interest in the heavily leveraged telecom operator. Source: NSE

Positive Triggers

Late last month, Vodafone Idea in which the Indian government holds a 49% stake — had announced that the government had reduced its long-standing dues to Rs 64,046 crore, down from Rs 87,695 crore earlier. The liabilities sprung from a prolonged legal dispute over the government’s method of calculating adjusted gross revenue, which telecom operators had challenged, as it forms the basis for determining licence fees and other statutory payments.

The combination of policy support and capital bolstering plan triggered interest in the heavily leveraged telecom operator.

The exact size and structure of the capital bolstering transaction are not known, but the discussions are understood to be focused on enhancing liquidity and supporting the telecom operator’s long-term funding requirements.

Reduced Liabilities

The government’s relief measure gives breathing room to the telecom operator, which has been working to stabilise operations amid intense competition and high debt levels, by reducing immediate liabilities. Markets view the twin combination of reduced dues and potential stake transfer as a significant step towards improving the company’s financial health.

Funds raised via stake transfer or any other capital action could be used to meet outstanding obligations, including statutory dues and spectrum payments, and could also go towards supporting network investments. Going forward, markets will watch for further clarity on the proposed transaction, as well as how proceeds, if raised, would be used.

Source:

• https://www.nseindia.com/get-quote/equity/IDEA/Vodafone-Idea-Limited