Beleaguered telecom operator Vodafone Idea Ltd. (VI) shares jumped 20 percent in trade on April 1 after the firm announced the Central government will convert its outstanding spectrum dues into equity shares. Further, shares of Indus Towers also jumped seven percent.
VI will issue 3,695 crore equity shares at a price of Rs 10 per share, converting dues to stock worth Rs 36,950 crore. However, the last closing price of Vodafone Idea shares on the bourses was Rs 6.8 apiece.
At 12.15 pm, shares of VI were quoting Rs 8.1 on the NSE, higher by 19 percent compared to the previous session's close. Indus Tower's stock was up 6.9 percent to quote Rs 357.35 per share.
Following the conversion of equity shares, the shareholding of the Government of India in Vodafone Idea will increase from 22.6 percent to 48.99 percent. "The promoters will continue to have operational control of the company," said the firm in a filing with the bourses.
According to the telecom operator, the issue price was determined based on the volume-weighted average price over the last 90 trading days or the preceding 10 days before the relevant date (February 26, 2025), in compliance with the Companies Act, 2013.
In a press statement, Vodafone Idea said the Ministry of Communications had issued an order on March 29, 2025, approving the conversion in line with the September 2021 Telecom Reforms Package. The company received the order on March 30.
This conversion marks the second time the government has converted Vodafone Idea's debt into equity. In 2023, Rs 16,133 crore of debt was converted into equity, at Rs 10 per share.
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International brokerage Citi Research has reaffirmed its buy rating on Vodafone Idea, as a result of the government's move. The brokerage maintained its target price of Rs 12 per share, which indicates an upside of around 76 percent from the previous session's closing price.
However, Citi Research did state that while the immediate financial burden on Vodafone Idea has been relieved, the telecom player still will face issues to raise fresh funds to expand its 4G and 5G networks.
Motilal Oswal, a domestic broking firm, said, "GoI equity conversion provides cash flow relief for Vi and is a key medium-term positive development, but stabilization of its subscriber base, long-pending debt raise, and further relief on AGR dues remain vital for Vi’s long-term survival."
The brokerage added that the government's continued commitment to maintaining a 3+1 market construct in the Indian telecom sector and the easing of Vi’s cashflow constraint are also positive for Indus Towers.
"Vi remains a high-risk high-reward play. We raise our target price to Rs 6.5 per share, from Rs 5 earlier, driven by Government of India’s equity conversion at a premium," said Motilal Oswal.
Vodafone Idea shares have lost over 50 percent of their value over the past 12 months, reflecting investor concerns over the company’s ongoing financial challenges and future growth prospects.
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