Vodafone Idea shares increase by 24%. Government approves turning debt into equity

As the government approves turning debt into equity, Vodafone Idea shares increase by 24%.

The government ultimately agreed to convert the telco’s accumulated interest into equity on Monday, which helped the cash-strapped company restructure its existing bank debt and pay vendor dues. As a result, shares of Vodafone Idea (Vi) increased by more than 24% intraday.

The government’s plan to save the telecom operator by converting interest on tremendous debt into equity has rekindled investor interest in the indebted telecom operator, which has helped the stock gain momentum.

The government became the largest shareholder in Vodafone Idea when the Centre approved the conversion of its Adjusted Gross Revenue (AGR) duties—the usage and licencing fee that telecom operators must pay to the Department of Telecommunications (DoT)—worth 16,000 crores. The action was taken after the government confirmed a contract from the Aditya Birla Group (ABG) that the money would be raised.

The company would transfer 1,613.18 crore equity claims to the government, part of the debt-to-equity conversion plan, for $10 per share, a 35% premium over the BSE closing price on Friday of $6.89. As a result, the government will be able to contact all other shareholders in the company with a holding of approximately 33%.

Aditya Birla Group and Vodafone Plc’s two promoter group members now possess 74.99% of the company’s shares, while the broad public will hold 25.01% of December 31, 2022. Only 50% of the company will stay in the promoter’s ownership after this transaction.

In response to the news, Vodafone Idea’s share price started 9.9% higher at 7.57 compared to the BSE’s most recent closing price of 6.89.

The telecom stock soared 24.4% to an intraday high of $8.57, increasing its market capitalization to $26,948 crore. In contrast to the two-week average volume of 332 lakh stocks, the counter experienced a spike in 1,500 lakh equities exchanged over the counter. The BSE Sensex, in contrast, was trading at 440 ends down at 60,400 levels.

A 52-week low of 6.33 was reached on January 27, 2023, and Vi shares are now trading 27% below their February 4, 2022, 11.81 52-week high. The stock has a negative annual return of 23% and a six-month decline of 3%. The stock increased by over 8% in the earlier month, then increased by 22% in one week.

To fund vendor payments and the implementation of 5G, Vi is severely cash-strapped. The panel of VIL decided to convert the interest on its debt into equity part of the telecom relief package around a year ago. The business sought to fund 20,000 crores through a combination of loans and equity for its capital expenditures, the launch of 5G, and vendor payments.

Supporters of Vodafone Plc and the Aditya Birla Group have already contributed almost 5,000 crores. Raising money is still essential for the telecom operator’s ability to compete given that over the last four fiscal years, it has incurred losses totaling 1.6 lakh crore.

As of September 30, the net debt (excluding lease liabilities) was 2.2 lakh crore. This amount was made up of debt from banks and financial institutions totalling 15,080 crores, debt for deferred spectrum payment duties totalling 1,37 lakh crores, including 17,260 crores for spectrum bought in the most recent spectrum auction.

After receiving a 33.4% interest, Center became the largest stakeholder of Vodafone Idea.

Vodafone Idea issued 16,130 million equity shares to the government, giving it a 33.4% ownership in the business. As a result, the government takes command of the telecom company’s major shareholder. The company’s current supporters will continue to exercise operational and managerial control.

By the September 2021 telecom reforms package, the government ordered Vi to give a 33.4% stake just days before the share point. The proposal was delayed for several months even though the Vi board had approved the conversion of interest worth Rs 16,133 crore on deferred liabilities into working equity stakes.

The council of VI approved the 16130 million shares with a face value of Rs 10 on Tuesday for transfer to the federal government’s Department of Investment and Public Asset Management. The share represents a lifeline for the financially strapped telecom operator, which has struggled to generate money, fund network growth, and pay vendors.

The government will now be the sole shareholder with the greatest holding, but if stakes are issued to ATC Telecom Infrastructure Ltd., that stake will drop to 32.09. From its current level of 74.99 per cent to 50.36 per cent and then to 48.76 per cent after the stake is subject to ATC, the promoter holding in the company will decrease.

After a respite in AGR dues payment, shares of Vodafone Idea soar, purchase something, or sell something?

The Vodafone Idea share price has been on an uptrend since the morning following relief from the Government of India (GoI) over AGR dues payment. Today’s intraday high for the Vodafone Idea share price was $8.55 per unit, representing a 25% increase from Monday morning trades.

Today’s share price got off to a good start. Stock market experts assert that the Vodafone Idea share surge, which is simply a short-term view, is the sole result of the company’s intention to convert the NPV of the interest associated with postponing spectrum auction instalments and AGR Dues into equity shares to be issued to the Government of India.

They declared that the increase is entirely speculative because, following this debt conversion into equity, the value of the company’s equity shares will soar by close to 50%. Additionally, they pleaded that since the corporation has been losing money continuously, such efforts are only temporary because they won’t affect the principles of the business.

The conversion of AGR dues into equity would result in an increase in the company’s equity share capital, which would decrease its earnings per share (EPS), according to Avinash Gorakshkar, Head of Research at Profitmart Securities (Earning Per share).

As a result, the recent increase is only temporary and speculative because the decision won’t substantially impact the company’s fundamentals. It wouldn’t be practical to achieve the stock merely because it has shown dramatic positive movement today. After all, Vodafone Idea has long been a loss-making business. I advise looking at those high-quality shares because better telecom companies are on the market.”

Telling Vodafone Idea stockholders to keep the stock, Vice President of Research Anuj Gupta of IIFL Securities stated, “Shares of Vodafone Idea have delivered a news-based breakout above $7.50 per piece, and they are now facing a hurdle at $9 per share levels. If it can overcome this obstacle, it may go to levels 10 and eventually 12.

Thus, owners of this stock may continue to hold it while retaining a stop loss at levels around $7.50. For novice investors, I would advise them to buy only when the stock approaches above levels of $9 per share. For targets of 10 and 12, one can purchase the stock over 9; a strict stop loss at 7.50 levels must be maintained.”

The respite in AGR dues repayment was announced by Vodafone Idea to Indian stock exchanges on Friday “to convert the net present value (NPV) of the interest related to the postponement of the spectrum auction instalments and the AGR Dues into equity shares to be transferred to the Government of India.

A total of Rs. 16133,18,48,990 will be converted into equity shares Company must give 1613,31,84,899 equity shares, each with a face value of 10 rupees, at a case price of 10 rupees.

edited and proofread by nikita sharma