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Vi surges on better cash flow hopes post debt conversion


Shares of Vodafone Idea Ltd jumped nearly 25% on Monday after the Indian government allowed the carrier to convert the $2 billion interest on dues owed to the sovereign into equity, which could free up some cash flows in the near term.

India had 2021 approved a bailout package for the debt-strapped telecom companies, allowing them to convert interest on deferred adjusted gross revenue owed to the government into equity.

Vodafone Idea decided to avail of that option and will issue 16.13 billion shares at 10 rupees a piece worth 161.33 billion rupees ($1.95 billion), the mobile carrier said late on Friday.

The company’s shares surged as much as 24.8% to 8.55 rupees, to log their best intra-day percentage gain in 16 months.

The government’s nod comes after a “firm commitment” from the co-promoter Aditya Birla Group to run the company and bring necessary investment, India’s telecom Minister Ashwini Vaishnaw said in a statement on Friday.

“Despite dilution of shares, we consider the government debt conversion to be near-term positive for Vodafone Idea as it would free some cash-flows,” BofA Securities analysts said in a note.

Vodafone Idea, a joint venture between Britain’s Vodafone Group and Aditya Birla Group’s Idea Cellular, was formed in 2018 to take on the intense price war unleashed by billionaire Mukesh Ambani’s wireless venture Reliance Jio.

Jio’s price competition erased the profits of rivals, pushing the industry into losses.

The move by the government will only reduce about 7% of the company’s 2.2 trillion rupees outstanding debt as of September 2022, which would result in no immediate free cash flow savings, Goldman Sachs analysts said in a note.

“Given the elevated debt profile, continued market share erosion and meaningful network gap versus peers, we see a low probability of Vodafone Idea raising a meaningful amount of external capital,” Goldman analysts said. Reuters

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