Vodafone Group Plc and Aditya Birla Group have reportedly changed their approach and are now open to the option of doing away with majority stake in Vodafone Idea or even transfer control to a strategic investor.
Vodafone Group owns a 45% stake in VIL, while the Indian promoter group, which includes Kumar Mangalam Birla and Aditya Birla Group firms, holds a 26% stake.
Mint reported that the struggling telecom operator’s current market value is Rs 24,000 crore ($3.24 billion), and if an equity deal of $2 billion or Rs 15,000 crore happens at the current stock price, the promoter holding will get diluted by 62.5%.
This means that Vodafone Group’s holding will come down to around 28% and Aditya Birla group’s holding will be lowered to around 16.25%.
“The initial plan was to get an investor in and, alongside, the two promoters would have invested some more equity; but that plan has not worked out so far,” a source was quoted as saying by Mint newspaper.
The publication reported that both promoter groups are open to the option of doing away with a majority stake or transfer control only if the foreign entities agree to pay a premium to the prevailing market price of Vodafone Idea so that the ailing company gets enough funding to cater to its dues.
Vodafone Idea management and its promoters group are currently in talks with five investors, both strategic and financial, including three US-based funds. The talks are revolving around selling a combination of Vodafone Idea shares and convertibles to be able to raise money, the publication reported.
The Indian government recently approved a proposal from Vodafone Idea for an investment of up to Rs15,000 crore via the foreign direct investment (FDI) route. However, the nod is just an enabling approval and no fund-raising deal has been sealed yet by the telecom operator.
Despite the approval on fund-raising, the telecom operator suffered a setback after the Supreme Court rejected the appeal by Vodafone Idea, Bharti Airtel and Tata Teleservices to allow correction of errors in the telecom department’s adjusted gross revenue (AGR) calculations.
In the wake of its ongoing financial woes, Vodafone Idea recently sought a year of moratorium to clear dues related to the recently purchased spectrum due to its bad financial health and informed the government that its investors are unwilling to infuse money unless tariffs rise and the health of the industry improves.
The telecom operator’s net loss widened to Rs 6985.1 crore ($943.92 million) in the fiscal fourth quarter and revenue fell to Rs 9,607.6 crore ($1.3 billion) from Rs 10,894.1 crore ($1.47 billion) in the October-December period.
Amid these developments, the telecom operator followed its bigger rival, Bharti Airtel, in increasing “effective” tariffs for its corporate postpaid user base. Both telecom operators have discontinued some entry-level plans and reduced benefits under existing plans in a bid to increase average revenue per user (ARPU). Vodafone Idea had previously increased prices of some of its general postpaid plans across the country. However, analysts said that raising tariffs for retail or regular customers will be challenging for the telco if others don’t follow the suite.