Vodafone Idea shares tumble over 20% on equity conversion


Shares of Vodafone Idea (VIL) fell more than 20% in the trading session on Tuesday, after the company announced plans to convert its entire amount of interest related to spectrum auction instalments and adjusted gross revenue (AGR) into equity. The stock hit a day’s low of ₹11.50 on the BSE over the previous close of ₹14.85.

The government will now hold the highest stake of 35.8% in the company and the conversion will lead to dilution of existing shareholders, including the promoters, the company said in a release on Tuesday. The net present value (NPV) of the interest is likely to be around ₹16,000 crore.

The scrip ended the trading session at ₹11.80, down 20.5% on Tuesday. VIL said, “Since the average price of the Company’s shares at the relevant date of 14.08.2021 was below par value, the equity shares will be issued to the Government at par value of `10/- per share, subject to final confirmation by the DoT. The conversion will, therefore, result in dilution to all the existing shareholders of the company, including the promoters. Following conversion, it is expected that the Government will hold around 35.8% of the total outstanding shares of the company, and that the promoter shareholders would hold around 28.5% (Vodafone Group) and around 17.8% (Aditya Birla Group), respectively.”

Analysts are of the view that the development will save the company from falling ahead in financial prospects for now. However, it remains to be seen how the business is carried ahead with the existing shareholders holding a lower stake. The plan to rope in a strategic investor for growth looks unlikely and lack of positive triggers would further impact the stock, said analysts.

“The stock is unlikely to witness any major re-rating moving ahead in the near future. However, one can be assured that the company won’t see a major downfall after government holding a larger stake. Overall, the outlook does not seem to be very positive going forward unless tariffs continue to rise at the current pace and Vodafone gains revenue market share,” Deepak Jasani, head of retail research, HDFC Securities, told FE.