Vodafone's potential Indus stake sale could speed up repayments to tower company: JPMorgan

As per reports, Vodafone Group is planning to sell its entire $2.3 billion stake in India's Indus Towers through stock market block deals.

Vodafone Group's probable stake sale in Indus Towers could drive cashflows of $2.3 billion which could see accelerated repayment to vendors such as Indus Towers and even drive a special dividend to the shareholders of the Indian tower company, analysts at JPMorgan said in a note.

"As per the security package agreed upon during the merger of erstwhile Bharti Infratel and Indus Towers, Vodafone Plc's 21 percent stake in Indus Towers was the primary pledge by its lenders against the $1.4 billion loan Vodafone Pic had taken in 2019 to participate in Idea's rights issue while Indus Towers had a secondary pledge with a maximum liability of Rs 42.5 billion," the global brokerage said in a note on Tuesday.

"Hence, we believe if this share sale goes through, then the proceeds of $2.3 billion would be first used to repay Vodafone Plc's lenders (revised loan value of $1.8 billion) and the remaining $0.5 billion (Rs 42 billion) could be used to partly clear Idea's past dues of Rs 54 billion," it said.

JPMorgan said that an equity infusion in Indus Towers to clear off past dues could result in a special dividend of Rs15 per share in FY25, given that the tower company hasn't paid dividends over the last two years due to elevated capex and receivable issues from Idea.

“If this stake sale goes through around CMP, Indus Towers could see accelerated repayment of dues either from Vodafone or via an equity infusion into Vodafone Idea. This could drive a special dividend of Rs15 per share in FY25 given Indus hasn’t paid dividends over the last 2
years due to elevated capex and receivable issues from Vodafone Idea,” the brokerage said.

As per reports, Vodafone Group is planning to sell its entire $2.3 billion stake in India's Indus Towers through stock market block deals.
Vodafone currently owns 21.5 percent of mobile-tower operator Indus via various group entities, while Bharti Airtel is the single largest holder with 48%.

“Post Vi’s fund raise in April 2024 we believe all the positives are priced into the stock. Moreover, the continued elevated capex in FY25 from persistent tower roll outs means dividends will likely be at risk for a third year in a row. We don’t see any positive catalyst and remain N,” the brokerage added.