Shares of Vodafone Idea surged on February 6 after the company said the government has cleared the conversion of interest it owes on statutory debt into equity.
As of 11.30, the stock zoomed 21 percent to trade at Rs 8.34 apiece on the BSE. However, this is still lower than the price at which the debt will be converted into equity, i.e., Rs 10 per share.
Vodafone Idea will be converting Rs 16,133 crore of debt into equity. After the conversion, the government will own 1613 crore shares in the firm, which roughly translates into 33 percent stake.
“We will not have any Board seat. Our holding will be classified as public shareholding,” DIPAM secretary Tuhin Kanta Pandey has said.
“Price has to be as per the law. Any conversion of loan into equity has to be at par value. Government cannot violate the law”, he replied, when he was asked why the conversion was done at Rs 10, when the market price was Rs 7.
The move by the government, which comes after a wait of about a year, will make it the largest shareholder in the company. This also bestows confidence in the company’s sustainability. There are also reports that suggest promoters may infuse more money in the company now.
However, not many see positives to sustain as the company is struggling to raise funds.
CLSA, reiterating its sell rating on the stock with target price at Rs 6, underlined that the government will own 33 percent of the company on conversion of interest to equity. British Vodafone Group will hold 31.7 percent and Aditya Birla Group will hold 18.2 percent.
“Govt is reportedly converting int dues after receiving commitment from promoters. It is converting interest dues to run the company and bring in necessary investment. We believe the company will still be in crisis to fund annual spectrum payments beyond 4-year moratorium,” CLSA said.
The brokerage house believes Vodafone Idea will be in crisis unless its average revenue per user (ARPU) reaches Rs 300. As of September 2022 quarter, its ARPU was at Rs 131 – lowest among its peers.
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