Vodafone To Sell 2.4% In Indus Via Block Deal

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In talks with major shareholder to sell 4.7% more

UK’s Vodafone Group Plc has said it is planning to sell 2.4% stake in Indus Towers through a block deal on Thursday and is also in talks with one of the tower company’s largest shareholders to sell 4.7% more.

It could raise up to Rs 4,300-4,400 crore through these stake stales and the funds will be infused into loss-making Vodafone Idea. The company further said it was in talks with “several interested parties” to also sell its residual stake in the tower company.

In a filing to the LSE, the UK company said it and the Aditya Birla Group (ABG) intend to contribute towards an issue of equity share by Vodafone India (Vi). “Vodafone and ABG, the promoters of Vodafone Idea Limited (Vi), are committed to support Vi in its efforts to strengthen its balance sheet… Vodafone and ABG intend to contribute towards an issue of equity shares by Vi once the terms of such a capital raise have been evaluated and decided on by the board of directors of Vi,” it said.

This is the first time Vodafone has officially confirmed its intent to participate in Vodafone Idea’s fundraising exercise. Fund infusion by Vodafone Idea’s promoters is key to the cash-strapped telco raising funds from external investors as it strives to revive its operations, compete in the market and arrest its rapid customer losses. Along with Vodafone Group, ABG chairman Kumar Mangalam Birla is also expected to invest around $200 million of his own capital into Vodafone Idea.

People familiar with the matter said Vodafone is in talks with Bharti Airtel for selling the 4.7% stake. ET broke the story on its online platforms at 3:48 pm on Wednesday. Emails sent to Bharti Airtel failed to elicit a response till the time of going to press.

According to banking sources, Vodafone is offering the 2.4% stake, or 63.6 million shares, held by unit Euro Pacific at Rs 227-231 per share. This could net the company between Rs 1,444 crore and Rs 1,469 crore. In the same price band, Vodafone’s 4.7% stake should net it an additional Rs 2,885.2-2,936 crore. Banking sources added that the Sunil Mittal-led telco is pushing to buy the stake for a price of under Rs 225 a share.

“Vodafone is… in advanced discussions with one of the largest shareholders in Indus for the purchase of up to 127.1 million Indus shares from Vodafone, or 4.7% of Indus’ outstanding share capital…The terms of such an agreement are currently being discussed and there can be no certainty that the sale will proceed,” the UK company said.

It said that if the sale is completed, Vodafone would retain 567.2 million shares in Indus, or a 21% shareholding. The company added that that it is in talks with “several interested parties” to sell even that balance stake.

Indus Towers’ shares closed down 0.4% at Rs 251.20 on the BSE on Wednesday. Vodafone Idea closed 1.6% lower at Rs 10.72 while the Airtel stock ended up 0.6% at Rs 704.25.

In its filing, Vodafone said the 7.1% stake it is selling was pledged to Indus as part of “security arrangements” between Vodafone and Indus at the time of the merger of Indus Towers with Bharti Infratel.

Vodafone and Indus have now modified the security arrangements in order to allow the telecom company to sell those pledged shares and “use the proceeds to participate in an issue of new shares by Vi”, the UK carrier said.

The proposed stake sales come at a time Vi is racing against time to raise funds to finance its operations. The company in an investor call recently had pegged March as the deadline for completion of its fund-raising exercise.

Vi, with a cash balance of Rs 1,500 crore and net debt of Rs 1.97 lakh crore at December-end, has been in talks with a slew of private equity players such as US-based Apollo Global and Carlyle for around $1 billion in equity and debt funding, as it looks to turn around operations. The company’s net loss for the fiscal third quarter ended December 31 widened to Rs 7,234.1 crore from Rs 7,144.6 crore in the year earlier as operating and interest expenses rose. It lost a further 5.8 million users to end December with just over 247 million subscribers.

Analysts say the telco needs an immediate cash infusion to build on the gains of the recent tariff hikes as well as the positive impact of a reforms package announced by the government last September. It needs to be able to arrest subscriber losses to its rivals Reliance Jio and Bharti Airtel, and revive its business.

Vodafone Idea is also considering the sale of overseas convertible bonds to raise $750 million to $1 billion (Rs 5,550-7,400 crore) at the earliest, ET has reported. The operator has appointed SBI Capital Markets to negotiate the restructuring of loans worth Rs 20,000-23,000 crore that the telco is due to repay within the next four years.

Vodafone and ABG had previously refused to infuse equity into Vodafone Idea, which has never made a profit since Vodafone India and Idea Cellular merged in August 2018.

However, the government’s relief package — announced in the middle of September, 2021 — which includes a four-year moratorium on adjusted gross revenue (AGR) and spectrum payments due to the government, reduced bank guarantees and the option to convert statutory dues to government equity, has changed the game considerably. The moratorium has eased Vodafone Idea’s immediate cash flow burden, making it attractive for investors, say experts. In addition, Vi has also opted to convert the accrued interest due to the deferred payment into government equity, which will potentially make the Centre the largest shareholder of the telco.

An additional stake buy in Indus Towers will help Bharti consolidate its hold over one of the world’s largest tower companies. This would allow Airtel to be in a position to monetise its holdings at a later stage, and leverage the tower company’s expected growth once Vodafone Idea revives and is in a position to invest significantly to expand operations, say experts.

With over 184,748 towers and 335,106 co-locations, Indus posted a net profit of Rs 1,571 crore in the December quarter, up 16% on-year with telcos adding more locations to tap strong data demand amid a continuing pandemic.