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Idea raises Rs 3,500 crore via QIP at Rs 82.5 per share

The share sale is part of Idea’s stated plans to raise Rs 6,750 crore to cut debt and free up cash ahead of its upcoming merger with Vodafone India.

Updated: Feb 16, 2018, 09.40 AM IST
MUMBAI: Idea Cellular on Thursday raised around $535 million, or about Rs 3,500 crore, through a qualified institutional placement (QIP) with the price at Rs 82.50 per share at the closure of bids, a person close to the issue said.

The share sale is part of Idea’s stated plans to raise Rs 6,750 crore to cut debt and free up cash ahead of its upcoming merger with Vodafone India. Earlier this week, it had raised Rs 3,250 crore through preferential allotment of some 32.66 crore equity shares at Rs 99.50 apiece to three promoter group entities that raised the Aditya Birla Group’s stake in the country’s No 3 carrier to 47.2% from 42.4% before.

“With Idea raising Rs 6,750 crore between the promoter and the institutional placement, Vodafone will need to place as much cash before the merger,” said a second person close to the deal.

This, plus funds from tower sale will give the Idea-Vodafone combine cash of over Rs 21,000 crore at inception.

At the close of the second quarter this financial year, Vodafone had estimated its debt contribution at roughly Rs 7,400 crore.

Idea and Vodafone didn’t respond to ET’s queries as of press time Thursday.

Idea’s QIP, run by Bank of America Merill Lynch (BofAML) and Citi Bank, got bids from around 30 investors, including several large mutual funds and insurance companies, the second source said. While the current large shareholders of the firm were restrained in their bids, new[DELETED] investors showed confidence in the entity’s ability to compete in a three-player telecom market in the country, the person said.

The institutional placement was set for $400 million, with an option to expand it to $535 million should there be demand.

BofAML declined comment on the issue. Citibank did not respond to ET’s query.

Idea and Vodafone will also infuse Rs 7,850 crore from sales of their telecom towers to ATC finalised in January. This means the merged entity will have about Rs 21,350 crore in cash to start with.

But analysts say it will need more money to fund operational losses and network expansion.

“Idea Cellular will definitely need more money to invest in infrastructure and fund its losses,” a telecom analyst at a consulting company said on condition of anonymity.

Cut throat competition in the Indian telecom market after the entry of Reliance Jio Infocomm in 2016 has forced consolidation in the industry with lagging players like Reliance Communications, Tata Teleservices and Telenor forced to shut down or merger, and Idea and Vodafone also deciding to merge.

Changes in termination charge and lowering of data plan prices resulted in a sharp drop in profitability, leading to Idea reporting its first quarterly net loss since listing in the quarter ended December 2016.

The pressure is still on. So far in 2018, both Bharti Airtel and Jio have offered low-priced data packages to hit at Idea’s rural customer base.

“That was the stronghold of Idea,” said the analyst cited earlier. In fact, the company has over the years prided itself in having expanded and captured market share in rural areas where leaders weren’t looking.

“A cash war chest can never be too big when you are coming from behind,” said the analyst.

Both Idea and Vodafone had maintained that India wasn’t ready for 4G services, even as Jio and Airtel pumped money into trials.

When the merger was announced in March 2017, Idea-Vodafone combine was set to be the largest telecom operator in only three that would survive. However, subsequently Bharti Airtel’s buyouts of Telenor and Tata Teleservices puts the bellwether in striking distance of the second and third largest players combined.

Analysts said key to Idea-Vodafone’s success is their ability to expand, be nimble, and be price competitive. “All three are cash consuming,” said the analyst quoted earlier.

Shares of Idea Cellular dropped 2.18% to close at Rs 82.90 on Bombay Stock Exchange on Thursday.

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